LIC takes ₹1,400 crore hit from loss of GST-linked input tax credit

Life Insurance Corp. (LIC) took a hit ₹1,400 crore due to loss of input tax credit after certain life and health plans were exempted from goods and services tax (GST).

However, the country’s largest insurer has managed to largely offset the impact by increasing the share of margin-enhancing non-participating policies and rationalizing expenses, managing director and chief executive officer R. Doraiswamy said in the earnings call following the company’s October-December quarter results.

The government has exempted life insurance and individual health insurance policies from GST from September 2025. While this made policies cheaper for buyers, the subsequent loss of input tax credit benefit increased insurers’ operational expenses.

“Our overhead rate is coming down. As a result, the impact of GST input tax credit has been included in the overheads, which has become rational. So we can manage it,” said Doraiswamy. Revenue growth expected to accelerate due to increased affordability following sales He added that the GST cuts should also help reduce the overhead rate, despite the expectation that the value of the new business margin (VNB) will increase “slightly” from the current level.

The overhead rate decreased 132 basis points to 11.65% for the nine months ending December 31. The value of new business (VNB) increased by 28% year-on-year during this period. ₹8,288 crore, while net VNB margin increased by 170 basis points to 18.8%.

Life insurer announced consolidated net profit ₹12,930 crore for the quarter, up 17% year-on-year and 28% quarter-on-quarter. Profit after tax increased by 16.7% in the nine months ending December 2025. ₹29,138 crore.

Commissions are optimal

days later While the Economic Survey 2025-2026 has called for reducing commissions paid to insurance distributors and brokers, Doraiswamy said LIC’s commissions are at an “optimal level” and the insurer does not see any reason to revise its commission structure at the moment.

He said the recent talks on commission payments relate more to other private players and the industry as a whole and are not necessarily related to LIC.

“We are more or less at the optimum level of the commission structure. However, if the regulation gives other directions, we will be fully compliant with that too,” Doraiswamy said. “We are not planning to do anything ourselves in the near future. But of course, if the rules stipulate something less than what we do, we will comply fully.”

Since the GST exemption, many insurance companies have suggested transferring some of the increased expenses to ecosystem partners by cutting commissions. On January 29, the Economic Survey said high insurance distribution costs were hindering the ‘expansion’ of customers’ risk pool and were a structural constraint on the growth of the sector. “The high-cost model poses a risk to the underlying financial strength of insurers, with rising purchasing and administrative costs leading to increased operating expenses across both life and non-life insurance.”

Doraiswamy is also happy that the recent Insurance Amendment Bill does not include a proposal to mandate an open architecture for insurance distribution. LIC has the largest insurance network in the country with 14.72 lakh agents as on December 31, accounting for 45.3% of the total agents in the life insurance industry.

“Our position is clearly that we are not too inclined towards this (open architecture) being introduced. So we are very happy that this is not part of the current reported law,” he said, adding that this was in the interest of the country and its policyholders as it would ensure that agencies are guided by what product is best suited for the customer and not “which company pays how much”.

Meanwhile, LIC is also working to expand Bancassurance network to reduce dependence on physical agents. The share of policy distribution through bancassurance increased from 3.4% in the previous year to 4.5%, and the share of alternatives and digital marketing increased from 1.9% to 3.7%.

Share sales plan

On the government’s plan to divest some of its stake in LIC to comply with public shareholding norms, Doraiswamy said that given the FY27 deadline, he expects the government to start allocating its stake in tranches in the next financial year.

“I am 100% sure that the government is considering doing this in tranches in the coming months. This is a timing call from the government,” he said, adding that once the government approves this, LIC may make some preparations in terms of roadshows for investors.

“The activity will depend on how the next tranche of offloading happens, whether it will be a public OFS (offer for sale) or a QIP,” he said, adding that the first tranche of the share sale will likely take at least 2-3 months to happen. The government needs to reduce its stake in LIC by 10%; 3.5% of which was divested in the insurer’s May 2022 IPO.

On the approval of the IPO by the National Stock Exchange, Doraiswamy said that LIC will see how the IPO turns out before deciding on its shares. LIC has 10.7% stake in the stock market.

He said his understanding was that the IPO would take another 6-7 months, meaning LIC had enough time to decide whether it planned to offload any shares and how much. “We remain a strategic investor and are undoubtedly a supporter. So this is a call to consider. As of now, it is not final.”