Big GST Cut on Insurance: What It Means in 2025
The focus keyphrase “GST cut on insurance” has returned to headlines after the 53rd GST Council Meeting hinted at rate rationalisation across sectors. With insurance premiums rising and penetration still low in India, a potential GST cut on insurance in 2025 could bring much-needed relief to lakhs of policyholders. Here’s what you need to know.
Why GST on Insurance Matters
Currently, insurance premiums attract GST at the following rates:
| Type of Insurance | GST Rate (as of 2025) |
|---|---|
| Term life insurance | 18% |
| Health insurance | 18% |
| ULIP (1st year premium) | 18% |
| Endowment policies | 4.5% (1st year), 2.25% (renewals) |
| Government schemes (PMJJBY, PMSBY) | Exempt or Nil |
This high 18% GST burden on pure protection and health plans makes essential insurance costlier for the common man—discouraging uptake among middle- and lower-income households.
What the GST Council Is Considering
At the 53rd GST Council meeting held on 22 June 2024, several proposals were tabled to review high GST rates on critical services like insurance.
As per press briefings and internal committee notes:
- 18% GST on health and term insurance is seen as regressive.
- Discussions are ongoing to reduce it to 12% or even 5%, especially for retail individuals.
- A distinction may be made between protection vs. investment-linked products (like ULIPs), with lower GST reserved for pure-risk cover.
This is part of a broader rate rationalisation roadmap—also discussed in the Group of Ministers (GoM) report submitted earlier to the Council.
How a GST Cut Will Impact Your Premiums
Here’s how your outgo can change if GST on insurance is slashed:
| Premium Amount | GST at 18% | If GST reduced to 12% | If GST reduced to 5% |
|---|---|---|---|
| ₹10,000 | ₹1,800 | ₹1,200 | ₹500 |
| ₹25,000 | ₹4,500 | ₹3,000 | ₹1,250 |
| ₹50,000 | ₹9,000 | ₹6,000 | ₹2,500 |
Lower GST = Lower premium = Higher affordability and wider coverage.
Legal and Policy Context
- Section 9 of CGST Act, 2017 levies GST on insurance services as a supply of service.
- Exemptions under Notification No. 12/2017-CT (Rate) apply only to specified government insurance schemes.
- Supreme Court in Bajaj Allianz v. UOI upheld GST applicability on insurance but also noted that fiscal policy should consider affordability in essential sectors.
Expert View: Real Relief or Cosmetic?
According to CA Meenal Sharma, a financial services tax advisor:
“A cut in GST on health and term insurance won’t just reduce premium burden—it’ll likely improve insurance penetration, which is below 4% in India. But for it to work, insurers must pass the benefit fully to consumers.”
What You Should Do as a Policyholder
- Wait before renewing long-term policies if your renewal is due in Q3 or Q4 FY 2025.
- Track CBIC notifications on gst.gov.in or via Efiletax updates.
- Ask your insurer if they will pass on GST cuts in case of changes.
- Re-evaluate your cover—cheaper GST could allow you to increase sum assured affordably.
GST Cut on Insurance: Keyphrase in Action
If GST cut on insurance is implemented, it could:
- Reduce household insurance costs
- Encourage more first-time buyers
- Help salaried and self-employed individuals access essential protection
FAQs on GST Cut on Insurance in 2025
Q1. Is GST applicable on all types of insurance?
Yes, except for a few exempt government-backed schemes. Most policies attract 18% GST as of now.
Q2. Will GST on health insurance be reduced in 2025?
Proposals are being considered, but no final notification has been issued yet.
Q3. How to claim GST benefits on insurance?
For business-linked policies, input tax credit may be available. For individuals, reduced GST will directly lower premium outflow.
Summary
GST cut on insurance in 2025 could slash premium costs for term and health policies from 18% to 12% or even 5%. This move, under discussion by the GST Council, aims to boost insurance adoption and reduce financial burden on individuals.
Stay Updated with Efiletax
If you’re planning to buy or renew a policy, follow Efiletax.in for real-time GST updates, premium calculators, and expert advisory services.