GST Scrapped On Health & Life Insurance Premiums From 22 September

In a landmark decision taken at the 56th Goods and Services Tax (GST) Council meeting, the government has announced a complete GST exemption on individual health and life insurance premiums.

Effective 22 September 2025, the reform will apply to all individual insurance plans—including ULIPs, term plans, and family floater health policies.

Previously, insurance premiums attracted 18% GST, meaning a policyholder paying ₹100 as a premium would actually spend ₹118.

Under the new regime, the premium paid will equal the actual policy cost, with no additional tax.

The government’s removal of GST lowers the cost of purchasing or renewing insurance, making essential financial protection more accessible.

This move could encourage more people to buy insurance, especially those who previously avoided it due to high upfront costs.

However, the extent of actual savings for customers will depend on how insurers adapt to the new tax structure.

Impact on Insurance Providers

While policyholders benefit from tax relief, insurance companies will now be unable to claim input tax credits (ITC)—a mechanism that allowed them to offset GST paid on operational expenses such as agent commissions, rent, and marketing.

Previously, insurers would collect GST from customers and pay their own GST on costs incurred.

They could then deduct that amount through ITC. For instance, if an insurer incurred ₹12.6 worth of GST on costs, it could offset this against the ₹18 collected from policyholders—leaving just ₹5.4 to be paid.

Now, with no GST collected from policyholders, insurers can no longer claim that credit. This means the full ₹12.6 becomes a cost burden.

Insurers may choose to absorb this loss or pass on some of the cost to customers in the form of slightly higher base premiums.

Industry estimates suggest that even with some cost passed on to customers, the final premium may still be lower than before.

If a ₹1,000 policy previously cost ₹1,180 (with GST), it could now cost approximately ₹1,033, depending on the insurer’s internal cost structure and pricing strategy.

A Step Towards Financial Inclusion

Experts argue that this move aligns with the principle of keeping essential financial services tax-free, promoting broader financial inclusion.

The change is expected to boost insurance penetration, especially in underserved areas.

While the reform may not lead to a full 18% reduction in premiums, it marks a significant step towards making insurance more affordable and accessible.

Each insurer will determine how to manage the removal of ITC, but most policyholders can expect a positive net impact.

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