GST Cut on Insurance Premiums: Relief for Policyholders Soon
The GST cut on insurance premiums—especially life and health insurance—is being considered by the GST Council. If approved, this move could bring much-needed relief to crores of Indians paying high premiums with 18% GST. Here’s what you need to know.
Why is GST Charged on Insurance?
Under GST law, life and health insurance fall under “financial services” and attract 18% GST. Currently:
- Health Insurance: Full 18% GST on the entire premium
- Term Life Insurance: 18% on premium
- ULIPs (post-2021 changes): Taxed heavily under income tax and GST
- Savings-cum-Insurance plans: GST on a portion of the premium
This tax burden reduces affordability, especially for middle-class .
What is Being Proposed?
According to recent government deliberations and media reports (Economic Times, July 2025):
- The GST Council is considering lowering GST from 18% to 12% or even 5% on select insurance categories
- Focus is on health and life insurance with social relevance
- Insurers and finance ministry have held discussions to make insurance more affordable and widen coverage
Key Impact of GST Cut on Insurance
If implemented, a GST cut could lead to:
| Aspect | Current (18% GST) | Proposed (Likely 5–12%) | Benefit to Policyholders |
|---|---|---|---|
| Health Insurance Premium | ₹20,000 + ₹3,600 GST | ₹20,000 + ₹1,000–₹2,400 GST | Save ₹1,200–₹2,600 annually |
| Term Insurance Premium | ₹10,000 + ₹1,800 GST | ₹10,000 + ₹500–₹1,200 GST | Save ₹600–₹1,300 annually |
| ULIPs / Endowment | Partial GST on risk part | Partial GST at lower rate | Higher returns on maturity |
For group insurance and government schemes like PMJJBY or PMJAY, GST is already exempt.
Legal Background: GST on Insurance
- Section 7(1) of CGST Act: Insurance is a supply of service
- Entry 9971 of GST Rate Notification No. 11/2017-CT(R): Classifies financial and related services
- Exemptions exist under Notification No. 12/2017-CT(R) for specific schemes like Jan Dhan-linked policies
- No general exemption for retail life or health policies till date
Expert View: Why a GST Cut Makes Sense
“Insurance is a social good. Taxing it at 18% disincentivises penetration in a country where only ~30% of population has life cover,” says a senior actuary from LIC (source: internal industry brief).
Insurance industry bodies like IRDAI and CII have also recommended a GST cut to expand coverage and align with global best practices.
What Should Policyholders Do Now?
✅ Continue paying premiums—no notification yet
✅ Watch for changes after the next GST Council meeting
✅ For new buyers: check if insurer offers advance adjustment in case of GST rate revision
✅ Consult your tax advisor if premiums exceed deduction limits under Sec 80C/80D
Frequently Asked Questions (FAQs)
Q1. Is GST on life insurance fully exempt?
No, GST is charged on term plans and partly on endowment plans. Only some government-backed schemes are exempt.
Q2. Will GST cuts apply to existing policies?
Likely yes—if implemented, existing and new policyholders may benefit from lower GST in their next billing cycle.
Q3. What about corporate group health insurance?
Group insurance policies may also benefit, but clarity will come from official notifications.
Summary
GST cut on insurance premiums may soon benefit life and health policyholders. The GST Council is expected to reduce rates from 18% to 5–12%, easing financial burden on middle-class families and boosting insurance penetration in India.
Final Word: Stay Informed with Efiletax
At Efiletax, we help you stay on top of every tax, GST, and finance update—simplified, trustworthy, and action-ready. If the GST cut on insurance premiums gets notified, our experts will update you and help you maximise savings.