LIC takes ₹1,400 crore hit from loss of GST-linked input tax credit
Feb 5, 2026
LIC, India's largest life insurer, managed to largely offset the loss of input tax credit through an increase in the share of margin-accretive non-participating policies and by rationalizing expenditure, says MD and CEO R. Doraiswamy
Life Insurance Corp. (LIC) has taken a hit of ₹1,400 crore due to the loss of input tax credit after certain life and health plans were exempted from the goods and services tax (GST).
However, the country’s largest insurer managed to largely offset the impact through an increase in the share of margin-accretive non-participating policies and by rationalizing the expenditure, managing director and chief executive officer R. Doraiswamy said during the company’s earnings call after the October-December quarter results.
The government exempted life insurance and individual health insurance policies from GST, effective September 2025. While that makes policies cheaper for buyers, the subsequent loss of input tax credit benefit has increased operational expenses for insurers.
“Our overall expense ratio has been coming down. As a result, the impact of GST input tax credit has been subsumed into the overall expenses, which are getting rationalised. So, we are able to manage,” Doraiswamy said. Topline growth, which is expected to get a boost from increased affordability following the GST cuts, should also help reduce the overall expense ratio even as the expectation is that the value of new business margin (VNB) will improve “a bit more” from the current level, he added.
Overall expense ratio for the nine-month period ended 31 December fell by 132 basis points to 11.65%. The value of new business (VNB) for the period was up 28% on-year at ₹8,288 crore, while the net VNB margin increased 170 bps to 18.8%.
The life insurer posted a consolidated net profit of ₹12.930 crore for the quarter, up 17% on year and 28% on quarter. For the nine-month period ended December 2025, the profit after tax was 16.7% higher at ₹29,138 crore.
Commissions are optimal
Days after the Economic Survey for 2025-2026 called for a reduction in commission paid to insurance distributors and intermediaries, Doraiswamy said that LIC’s commissions are at an “optimal level” and the insurer sees no reason to revise its commission structure at the moment.
The recent conversation around commission payouts pertains more to other private players and the sector as a whole, and does not necessarily pertain to LIC, he said.
“We are more or less at the optimum level of commission structure. But if the regulation gives some other directions, we will be fully compliant to that as well,” Doraiswamy said. “We are not looking to do anything on our own in the immediate future. But of course, if the regulations prescribe something which is lesser than what we are doing, we will be fully compliant on that.”
Since the GST exemption, several insurance companies have suggested passing on part of the increased expenses to ecosystem partners by cutting commissions. On 29 January, the Economic Survey said that high insurance distribution costs are preventing a ‘widening’ of the risk pool of customers, and acting as a structural constraint on the sector’s growth. “The high-cost model poses a risk to the core financial strength of insurers, with escalating acquisition and administrative costs resulting in increased operating expenses across both life and non-life insurance.”
Doraiswamy is also glad that the recent Insurance Amendment Bill did not include the proposal to mandate an open architecture for insurance distribution. LIC has the largest insurance network in the country of 14.72 lakh agents as of 31 December, comprising 45.3% of total agents for the life insurance sector.
“Our position is clear that we are not terribly inclined towards that (open architecture) to be introduced. So, we are very happy that that's not part of the current act, which has been notified,” he said, adding that this is in the interest of the country and policyholders as it will ensure that agents are not guided by “which company pays how much” but by what is the most suitable product for a customer.
Meanwhile, LIC is also working to grow its bancassurance network to reduce reliance on physical agents. The share of policy distribution via bancassurance rose to 4.5% from 3.4% a year earlier, and from alternatives and digital marketing to 3.7% from 1.9%.
Stake sale plan
On the government’s plan to divest part of its shareholding in LIC to comply with public shareholding norms, Doraiswamy said that given the deadline of FY27, he expects the government to start offloading its stake in tranches in the next financial year.
“I am 100% sure that the government is looking at doing that in tranches in the months to come. It is a call of timing by the government,” he said, adding that once the government approves it, LIC might undertake some preparation in terms of roadshows for investors.
“The activity will depend upon what form the next tranche of offloading is going to happen in, whether it is going to be an OFS (offer for sale) to the public or whether it is going to be a QIP,” he said, adding that it is likely to take at least 2-3 months for the first trance of stake sale to happen. The government is required to bring its stake in LIC down by 10%, of which 3.5% was divested during the insurer’s IPO in May 2022.
On the approval for the National Stock Exchange's IPO, Doraiswamy said that LIC will see how the public offer pans out before deciding on its shareholding. LIC holds 10.7% in the bourse.
The understanding, he said, is that the IPO will take another 6-7 months, which means LIC has enough time to decide on whether it plans to offload any stake and how much. “We continue to be a strategic investor, and we are a promoter, no doubt. So, it is a call to be taken. It is not final as of now.”
[Mint]
