Page 46 - The Insurance Times October 2025

GST 2.0 Reforms

GST 2.0 Reforms: What They Mean for the Life

Insurance Industry and Consumers

T he Indian insurance industry has long been advocat- fordable pricing through lower GST can encourage families

to opt for adequate life cover, helping insurers expand their
ing for rationalisation of Goods and Services Tax (GST)
on life and health insurance products. With the rollout of reach in Tier 2 and 3 cities.
GST 2.0 reforms, expectations are high that the sector will
finally receive much-needed relief and structural clarity. The 3. Simplification in Tax Treatment
reforms aim to simplify compliance, widen the tax base, and By harmonising GST across various life insurance products,
rationalise rates—moves that could significantly alter how GST 2.0 could remove the confusion that exists today be-
insurers price products and how consumers perceive insur- tween term, endowment, ULIP, and pension products. A
ance as a financial tool. uniform approach will ease compliance for insurers and
improve transparency for policyholders.
Current GST Challenges in Life Insurance
Under the present GST structure: 4. Encouragement for Long-Term Savings
Term plans and risk-only products attract 18% GST on Investment-oriented life insurance products, if taxed at a
premium. lower or uniform rate, could emerge as more competitive
against mutual funds and other savings instruments. This will
Endowment and ULIP products are taxed on the risk
support long-term household financial security.
portion and charges, creating complexity.
Premiums paid towards annuities, pension products, and
5. Operational Ease for Insurers
investment-linked insurance attract varying tax treat- Simplified GST structures reduce the administrative burden
ments.
of splitting risk and investment components and reconciling
tax credits. This efficiency can lower operational costs, al-
This has often made life insurance appear more expensive
lowing insurers to pass on benefits to policyholders.
to consumers, especially when compared to mutual funds
or small savings schemes, discouraging penetration in a
country where financial protection remains alarmingly low. Impact on Insurance Companies
1. Input Tax Credit (ITC) Challenges
Impact of GST 2.0 on the Life Insurance In- Under the current regime, insurers face restrictions in
availing full input tax credit (e.g., on distribution costs,
dustry
technology services, outsourcing, and back-office func-
1. Lower Premium Burden tions).
A reduction or rationalisation of GST rates on pure risk prod-
This means they often absorb higher operational costs,
ucts like term insurance will make policies more affordable.
which indirectly raises product pricing.
This could drive higher adoption, particularly among the
middle class and younger consumers. GST 2.0 reforms could allow wider ITC utilisation, im-
proving efficiency and enabling insurers to pass on cost
2. Boost to Protection Gap Reduction benefits to consumers.
India faces one of the world’s largest protection gaps. Af- 2. Compliance and Operational Burden

42 October 2025 The Insurance Times