Insurance GST Cut Benefits Not Reaching Policyholders, Survey Reveals
Hyderabad: Policyholders across India are facing a dual challenge with their insurance coverage. Not only are health insurance premiums causing significant financial strain, but many insurers are also failing to pass on the benefits of the recent goods and services tax (GST) reduction. The tax rate was officially cut from 18% to 0% on personal life and health insurance policies starting September 2025, yet a substantial portion of consumers report not seeing any meaningful relief in their costs.
Survey Highlights Widespread Issue
A comprehensive nationwide survey conducted by the community platform LocalCircles has brought this issue to light. The survey gathered responses from over 20,000 individuals spanning more than 301 districts across the country. According to the findings, a staggering 36% of consumers who purchased or renewed individual health or life insurance policies after the GST rate change confirmed they did not receive any benefit from the tax exemption.
Sachin Taparia, founder of LocalCircles, emphasized the persistence of the problem. "When LocalCircles conducted the survey in November last year, 43% of respondents who had renewed their policy confirmed not getting any benefit of GST rate reduction. That number has dropped to 36% in March, which shows minor improvement," Taparia stated. "However, one in three still not getting the benefit of GST rate reduction is significant and warrants government action."
Insurers Offset Tax Relief with Price Hikes
The survey data reveals that insurers have been employing tactics to negate the GST cut. Specifically, 48% of respondents said the full benefit of the lower tax was passed on when they purchased or renewed a policy. However, 26% reported that no benefit was passed on because insurers raised the base price of policies, apart from the annual premium increase. An additional 5% said some benefit was passed on but the base price was partially raised, while another 5% said no benefit was passed on and the full 18% GST was still levied.
In a letter sent to Insurance Regulatory and Development Authority of India (IRDAI) chairman Ajay Seth and finance minister Nirmala Sitharaman on Monday, LocalCircles highlighted this practice. The letter points out that while GST was removed, some insurers have offset the relief by increasing the base price of policies, leaving policyholders feeling shortchanged.
Broader Concerns Over Policy Value and Claims
The issue extends beyond just GST benefits. LocalCircles also raised concerns about the overall value of insurance policies. The platform noted that seven in ten personal health insurance policyholders reported cumulative premium increases of 50% to 200% since 2022. This steep rise is coupled with a steady erosion in policy value, including exclusions for newer treatments, the introduction of co-payments, and higher deductibles.
"Respondents also reported a steady erosion in policy value, citing exclusions for newer treatments, the introduction of co-payments and higher deductibles. That combination is feeding a deeper sense of disillusionment, especially among younger buyers who are beginning to question whether health insurance remains worth the cost in its current form," the letter stated.
Furthermore, the survey flagged delays in cashless claim processing. Despite IRDAI's directive that such claims should be adjudicated within three hours, about five in ten respondents who filed a claim said the approval and discharge process took between six and 48 hours.
Calls for Regulatory Action
In response to these findings, LocalCircles has called for immediate action from regulators and the government. The platform urged a thorough review of premium increases, claim processing timelines, approval practices, and compliance with GST reduction pass-through requirements. Many policyholders now believe they are paying significantly more while receiving less in return, underscoring the urgency of addressing these issues to restore trust in the insurance sector.
