Page 47 - The Insurance Times October 2025

Present GST rules require segregating risk and invest- Improved Trust and Transparency
ment portions for ULIPs and endowment plans, creat- Consumers often question why life protection is taxed
ing complexity in filing and reconciliation. at such a high rate. Rationalisation will align insurance

GST 2.0 aims to simplify compliance with harmonised with its role as a social security instrument, enhancing
tax treatment, reducing administrative costs and er- trust.
rors. Increased Insurance Penetration
3. Impact on Product Innovation Cheaper, simpler, and more transparent policies will
likely increase life insurance penetration, especially
High GST rates limit insurers’ ability to design low-cost
among first-time buyers and underserved rural popula-
protection products.
tions.
Rationalisation under GST 2.0 will free up margins and
encourage new microinsurance and affordable term Macro Impact on the Insurance Ecosystem
products, expanding reach in rural and semi-urban mar-
Insurers: Wider reach, improved persistency rates, and
kets.
reduced compliance headaches.
4. Reinsurance Costs
Regulators: A step closer to financial inclusion and the
Reinsurance premiums, especially cross-border, attract
“Insurance for All by 2047” vision.
GST with limited ITC.
Government: Although GST collections may decline
Any reforms allowing better tax treatment for reinsur- marginally in the short run, broader adoption of life
ance transactions will reduce costs, benefiting both in- insurance will improve household resilience and reduce
surers and policyholders. reliance on state welfare in crises.

Other Issues to Consider The Way Forward
1. Tax Arbitrage vs. Other Savings Products: Risk Products at Zero or Concessional GST: Align life
Insurance still suffers from being perceived as expen- insurance with essential services like healthcare and
sive compared to mutual funds or small savings education.
schemes, partly due to GST. A fair GST rate could level
Public Awareness Campaigns: Highlight GST 2.0
the playing field. changes to encourage people to reconsider life insur-
2. Awareness Gap Among Consumers: ance purchases.
Many consumers are unaware that GST forms part of Digital Onboarding Expansion: Lower costs and im-
their premium. Transparent communication post-GST proved affordability must be paired with easy access
2.0 will be essential. through digital and mobile-first platforms.

3. Short-Term Revenue Concerns for Govern- Industry-Government Partnership: Insurers, IRDAI,
ment: and the government should collaborate to ensure the
Lower GST rates may reduce tax collections initially. benefits of GST reforms are passed down to consumers
without delay.
However, increased penetration will create long-term
stability in revenue and reduce the welfare burden on Conclusion
the state.
GST 2.0 reforms mark a watershed moment for the Indian
life insurance sector. By reducing costs, simplifying compli-
Impact on Consumers
ance, and enhancing transparency, the reforms can simul-
Affordability taneously benefit insurers and consumers. Most importantly,
Lower GST will directly reduce out-of-pocket premium they can accelerate India’s journey toward a more finan-
costs. For example, a Rs. 20,000 annual term policy cur- cially secure society—where life insurance is no longer a tax-
rently attracts Rs. 3,600 in GST. A cut to 12% would burdened luxury, but a mainstream necessity for protection
save the consumer Rs. 1,200 annually. and savings.

The Insurance Times October 2025 43