GST on Insurance Premiums 2025: What You Need to Know
A major GST cut on insurance is reportedly under discussion by the government for 2025. If approved, this could lower premiums for crores of policyholders across India. Currently, most insurance policies attract 18% GST — a cost that directly hits your pocket, especially on large-value or long-term plans.
Let’s break down what’s being proposed, why it matters, and how it could impact your finances in 2025.
Current GST on Insurance: The Breakdown
Under the present GST regime, insurance policies are taxed as follows:
| Type of Insurance | GST Rate |
|---|---|
| Life Insurance (1st year) | 4.5% on premium |
| Life Insurance (subsequent years) | 2.25% |
| Health Insurance | 18% |
| Term Insurance | 18% |
| ULIP (if charges are not equity linked) | 18% |
| Endowment or Savings Plans | 4.5% (1st year), 2.25% (renewals) |
Even a basic term insurance policy of ₹10,000/year attracts ₹1,800 GST — adding a steep burden for middle-class buyers.
Why a GST Cut on Insurance Is Being Considered
The GST Council, in line with Budget 2024–25 goals, is examining whether high GST rates are discouraging insurance penetration in India.
According to IRDAI data:
- India’s insurance penetration remains around 4% of GDP (global average is 6.8%).
- Health insurance coverage is still limited, especially among the lower-middle-income segment.
By lowering GST on insurance, the government hopes to:
- Make life and health policies more affordable
- Promote financial security
- Increase coverage among younger and lower-income groups
This aligns with broader financial inclusion objectives and Ayushman Bharat expansion targets.
Possible GST Changes in 2025: What to Expect
While no official Notification is out yet, proposals being discussed in the 54th GST Council Meeting (expected Q3 2025) include:
- Reducing GST on term and health insurance from 18% to 12% or 5%
- Zero-rating or exempting microinsurance schemes for low-income groups
- Uniform GST treatment for all life insurance products to remove ambiguity
- Special exemption for critical illness and plans
The CBIC and IRDAI are reportedly in consultation to balance tax revenue and social welfare.
How It Will Impact You: Real Examples
Let’s say you pay the following annual premiums:
| Policy Type | Premium (₹) | Current GST (₹) | If 12% GST (₹) | Savings (₹) |
|---|---|---|---|---|
| Term Insurance | 20,000 | 3,600 | 2,400 | 1,200 |
| Health Insurance (Family Floater) | 30,000 | 5,400 | 3,600 | 1,800 |
| ULIP | 50,000 | 9,000 | 6,000 | 3,000 |
Over a 10-year horizon, this could save families thousands in recurring tax costs.
Expert View: How to Plan Before the Notification
Tax consultant insight:
“If you’re planning to buy term or health insurance in FY 2025–26, wait for a few weeks if possible. If GST cuts are notified, insurers will likely revise prices. However, don’t delay if coverage is urgently needed — your protection should come first.”
Also, remember:
- GST is not refunded on personal insurance in ITR
- Businesses can claim ITC only on insurance related to employees (and under specific conditions)
Legal Angle: What the Law Says
As of now, Notification No. 12/2017-CT(Rate) and Notification No. 4/2017-IT(R) govern exemptions and rates applicable to insurance services. Any change will come via an amending notification under Section 11 of the CGST Act, 2017.
Stay updated via the official CBIC site for any Gazette release.
Summary
Government may slash GST on life and health insurance in 2025, bringing much-needed premium relief. If approved, the rate may drop from 18% to 12% or even 5%, encouraging wider coverage. Final decision expected in upcoming GST Council meet.
FAQs on GST Cut for Insurance
Q1. Is GST on insurance currently refundable?
No. For individuals, it’s a cost. ITC is not available unless used for business purposes under specific conditions.
Q2. When will the new GST rates apply?
If approved in the next GST Council meeting, the rates may apply from October 2025 or as notified.
Q3. Will old policies benefit from the reduced GST?
Only premiums paid after the notification date will attract revised GST. Past payments are not refundable.
Q4. Does this affect LIC and PSU insurance too?
Yes, if implemented, all insurers — public and private — will follow the revised GST rate uniformly.
Final Word: Stay Covered, Stay Updated
While a GST cut on insurance may ease your premium burden, don’t delay essential coverage. For timely updates on notifications, tax-saving options, and smarter financial planning, follow Efiletax.
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