₹1300 Savings for Policyholders | GST 2.0 ITC Denial Impact | 8 Points

Delhi

Key Highlights on ITC and GST Impact for Health & Life Insurance

1. No Structural Change in ITC Framework

   • CBIC Chairman Sanjay Kumar Agarwal confirmed that there will be no structural changes to the Input Tax Credit (ITC) system for insurers.

   • Health and life insurance companies must manage costs without government relief.

2. Impact on Insurance Premiums

   • Even without ITC, policyholders will see premium savings compared to the pre-exemption period.

   • Example explained by CBIC:

   Scenario	Base Premium	GST (18%)	Final Cost	ITC Cost Impact	Net Cost to Policyholder	Net Saving
   Before Exemption	₹10,000	₹1,800	₹11,800	–	₹11,800	–
   After Exemption (No ITC)	₹10,000	Nil	₹10,000	+₹500 (absorbed cost)	₹10,500	₹1,300

3. No ITC on Exempted Services

   • Insurers sought ITC relief on commission agent services and related operational expenses.

   • CBIC ruled this out, citing that exempted items cannot claim ITC under GST law.

4. GST 2.0 Transition Rule

   • Businesses like insurance must reverse accumulated ITC for supplies made on or after 22nd September 2025.

   • Clear directive: No ITC benefit post-exemption.

5. Sectoral Comparison

   • Restaurants at 5% GST slab continue operating without ITC benefits.

   • Insurance sector treated similarly under GST rationalization.

6. GST Council’s Two-Rate Structure

   • New GST regime approved on September 4, 2025.

   • 5% slab (essential services, like insurance, restaurants).

   • 18% slab (general services).

   • 40% slab (tobacco & ultra-luxury items).

7. Finance Ministry’s Support Promise

   • Nirmala Sitharaman assured that transitional provisions would be in place before September 22, 2025.

   • Industry stakeholders to be consulted for smooth transition.

8. Short-Term Financial Impact

   • Insurers lose ITC credits, increasing operational costs.

   • Policyholders gain relief via lower premiums despite partial ITC absorption.

   • Market shift: Estimated ₹1,300 average saving per retail policy.

💰 Winners vs Losers Post-GST Exemption