GST Exemption to be a Drag on Life Insurers’ Q2 FY26 Profitability
The article reports that the recent government decision to grant a Goods and Services Tax (GST) exemption on individual life insurance premiums is expected to have an adverse impact on the profitability of life insurers for the second quarter of the fiscal year 2026 (Q2 FY26).
Core Reason: Loss of Input Tax Credit (ITC)
- Exemption Leads to ITC Loss: By making individual life insurance premiums exempt from the 18% GST, the products become “zero-rated” from the consumer’s perspective. However, under GST law, this status generally means insurers are no longer eligible to claim Input Tax Credit (ITC) on the GST paid on their operational expenses (such as rent, software, commissions, and other administrative inputs).
- Cost Becomes Expense: The GST paid on these inputs, which was previously claimed as credit, now becomes an unrecoverable cost built into the company’s operating expenses. This direct impact on the cost structure is expected to depress profit margins.
Industry Response
- Commission Adjustments: The loss of ITC has compelled some insurers to restructure or reduce the commissions paid to agents and distributors in an attempt to offset the financial hit, a move that has caused friction within the distribution channel.
Financial Outlook
- The industry expects the financial impact of the lost ITC to cause a temporary decline or muted growth in the overall profitability of life insurance companies during the transition period (Q2 FY26), despite the long-term goal of the GST exemption being to boost insurance affordability and penetration.
Source :- Deccan Chronicle