Govt Removes GST on Life and Health Insurance Premiums

In a landmark decision from the 56th GST Council meeting on September 3, 2025, the government announced that GST will be completely removed from individual life and health insurance premiums, effective September 22, 2025. This significant relief aims to make insurance services more affordable for policyholders.

What Has Changed

• Previously, life and health insurance policies faced 18% GST, inflating premiums.
• The updated rule abolishes this tax for individual policies, including term life, ULIPs, endowment plans, family floater, and senior citizen health plans, as well as their reinsurance.
• The reform is part of a broader overhaul to simplify GST into two main slabs: 5% and 18%, with a separate 40% slab for luxury/sin goods.

What It Means for Consumers & Insurers

Consumers:

• Direct savings are expected—if an annual premium was ₹10,000, the GST component of ₹1,800 would now be removed, lowering the cost to ₹10,000. Premiums could drop by up to 15%, depending on insurer pricing strategy.

Insurers:

• A key concern: with GST removed, they lose the ability to claim Input Tax Credit (ITC) on operational expenses (like commissions, technology, claims processing). This eats into margins.
• Industry leaders offer mixed reactions: “It may result in about 3% loss of revenue for new sales,” said Nilesh Sathe, former IRDAI member.
  “If insurers fully pass on the benefit, premiums could fall by up to 15%,” estimates CLSA.Business Today
  Others argue net savings to consumers could be far less, perhaps around 5–6%

Broader Economic Rationale

This GST decision is a consumer-centric move, aimed at promoting insurance penetration, easing financial burdens on households, and making healthcare protection more accessible—especially ahead of the festive season when demand naturally rises.

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