0% GST on health, life insurance , Big Relief for Policyholders

0% GST on health, life insurance , Big Relief for Policyholders

The Goods and Services Tax (GST) on individual health and life insurance premiums in India has been reduced from 18% to 0%, effective from September 22, 2025. This move was unanimously approved by the 56th GST Council, chaired by Finance Minister Nirmala Sitharaman, aiming to make insurance more affordable for individuals and families by eliminating the tax component on premiums.

Key Highlights of the 0% GST on Health and Life Insurance

• The 18% GST previously added to health and life insurance premiums will no longer apply, meaning policyholders will pay only the base premium price without additional tax burdens. For example, a premium of ₹20,000 earlier cost ₹23,600 after GST; now it will be just ₹20,000.

• This reduction directly lowers insurance costs by approximately 15%, according to HSBC analysis, increasing insurance affordability and potentially boosting insurance penetration in India.

• The exemption applies to all individual health insurance policies, including family floater and senior citizen plans, as well as all individual life insurance policies, such as term life, ULIPs, and endowment plans, along with their reinsurance services.

• Insurance companies have welcomed the move as it removes a significant cost barrier, which can encourage more people to take health and life insurance and align with the government’s vision of "Insurance for All by 2047".

• The government may face an annual revenue loss estimated between USD 1.2 to 1.4 billion due to this GST exemption.

Potential Concerns and Industry Insights

• Though insurers will not charge GST, they may lose the ability to claim input tax credits (ITC) on expenses related to providing insurance services. This loss could lead insurers to adjust premium pricing to compensate for higher operational costs, which might dilute the direct benefit for policyholders.

• Industry experts highlight the need for insurers to actually pass on these GST savings to customers to ensure real relief, which the government and insurance companies have assured.

• Some expect a possible short-term premium increase of around 1-4% from some insurers due to the withdrawal of input tax credits, despite the zero GST on premiums, but overall costs for consumers are expected to be lower.

Overall Impact

The 0% GST on health and life insurance premiums represents a significant relief for policyholders, making insurance more affordable and accessible, especially for middle-class households and senior citizens. It is expected to encourage more individuals to buy insurance, thereby strengthening health security and financial protection for millions across India.

This GST reform also reflects a broader government initiative to rationalize GST slabs and reduce the tax burden on essential services, aligning tax policy with social welfare goals.

If the savings from GST exemption are fully passed on, consumers can expect to pay about 15% less on their insurance premiums starting late September 2025, making this a landmark step toward enhancing insurance penetration in India.