The GST cut on insurance, effective September 22, 2025, removes the 18% tax on health and life insurance premiums. This move makes insurance more affordable, boosts financial inclusion, and supports the goal of “Insurance for All by 2047.”
In this article, we break down what this GST cut on insurance means for policyholders and the insurance industry, and how it contributes to more affordable insurance in India.
What Changed With GST cut on Insurance Premiums ?
Earlier, health and life insurance policies carried an 18% GST, which inflated premiums significantly. For instance:
- A policy with a base premium of ₹20,000 cost ₹23,600 after tax.
- A policy worth ₹30,000 cost ₹35,400 with GST.
From September 22, 2025, no GST applies to individual health and life insurance policies. This includes term insurance, ULIPs, endowment plans, family floaters, and senior citizen plans. Group insurance policies, however, continue to attract 18% GST.
This aligns with IRDAI’s vision of making affordable insurance in India accessible, particularly for middle- and lower-income households.
How the GST Cut on Insurance make It Affordable :
- Lower Premiums: Policyholders now pay only the base premium. A ₹30,000 policy that earlier cost ₹35,400 will now cost ₹30,000, saving ₹5,400 annually.
- Boost in Insurance Penetration: India’s insurance penetration is around 3.7% of GDP, far below the global average of 7%. The GST cut on insurance removes a major cost barrier, encouraging more people to buy insurance.
- Relief for Families and Seniors: Rising medical expenses make health insurance crucial. With GST removed, comprehensive family and senior citizen policies become more affordable.
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Benefits for Policyholders :
- Immediate Savings: For a ₹25,000 premium, you save ₹4,500 annually.
- Option for Higher Coverage: Lower premiums free up room in budgets for higher sums insured or useful riders like critical illness cover.
- Smart Moves for Policyholders:
- Renew policies after September 22, 2025 to benefit from zero GST.
- Explore new health and life policies at reduced costs.
- Verify insurers are passing on the full GST savings.
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Challenges for Insurers :
The GST cut benefits consumers but creates challenges for insurers:
- Loss of Input Tax Credit (ITC): Insurers can no longer offset taxes on expenses like commissions and IT systems. This could increase operating costs.
- Possible Premium Adjustments: Experts suggest premiums might rise slightly (3–5% for health insurance, 0.5–1.5% for life insurance) to balance the ITC loss.
Despite this, many insurers welcome the move, expecting higher insurance adoption to offset margin pressures.
Broader Impact on India’s Economy :
- Increased Insurance Coverage: More first-time buyers will help reduce India’s protection gap.
- Improved Healthcare Access: Families can afford quality healthcare through wider insurance coverage.
- Economic Growth: Lower costs and higher demand will boost the insurance sector, supporting India’s inclusive growth goals.
The government may lose revenue (estimated at USD 1.2–1.4 billion annually), but higher insurance penetration and improved health security are expected to deliver greater long-term benefits.
Expert Insights :
- Smita Singh, Partner at S\&A Law Offices: Called the move a “welcome step toward affordability.”
- Hanut Mehta, CEO of BimaPay Finsure: Believes it will attract new buyers and encourage higher coverage.
- CA Meenal Sharma, tax advisor: Urges policyholders to ensure insurers pass on the GST benefit fully.
What Policyholders Should Do :
- Time Renewals Wisely: Renew or purchase policies after September 22, 2025.
- Compare Plans: Use savings to upgrade coverage or add riders.
- Stay Updated: Follow official notifications on gst.gov.in and check insurer updates.
- Reassess Coverage: With reduced premiums, consider higher coverage for better protection.
Conclusion
“From September 22, 2025, GST cut on insurance cuts costs by up to 15%, making policies more affordable. While insurers may face some challenges, policyholders now have the chance to secure better coverage at lower costs and strengthen their financial security.”
❓FAQs :
1. How does the new GST rule affect insurance premiums?
From September 22, 2025, GST on individual health and life insurance is reduced from 18% to 0%. This directly lowers premiums by up to 15%.
2. Does the GST cut apply to all types of insurance?
No. The exemption applies only to individual health and life insurance policies like term plans, ULIPs, endowment, family floater, and senior citizen plans. Group insurance policies still attract 18% GST.
3. Will insurers increase base premiums despite the GST cut?
Some insurers may adjust base premiums slightly due to the loss of input tax credit (ITC). However, overall policy costs are still lower for customers.
4. Should I delay renewing my policy to benefit from the GST cut?
Yes, if your renewal is after September 22, 2025, you will benefit from zero GST. However, never let your policy lapse just to save GST.