Understanding the GST Impact on Insurance: What Every Policyholder and New Buyer Should Know

GST Impact on Insurance, every Policy Holder and new buyer should know

The GST (Goods and Services Tax), was introduced in India in 2017, has undergone a major transformation, effective September 22,2025. In a landmark decision GST council announced to reduce the GST from 18% to 0%(Nil) on Individual Health and Life Insurance policies, making it more affordable for average Indian house hold to buy insurance and boost insurance penetration.

What is GST in Insurance?

GST is a single Tax structure on goods and services. Earlier we had various taxes like

• Service Tax

• Krishi Kalyan Tax

• Education Cess

• VAT

• Swatch Bharat Cess

Under unified tax i.e. GST, mostly it was 18% on major insurance products barring few before GST relief given by Indian Government.

Impact of GST on Health Insurance?

Earlier customer had to pay 18% GST on Insurance Premium ,lesser on endowment policies.

Example: - if your base premium is Rs10000/ and 18% GST applied i.e. Rs1800 / so total payable premium to insurance company is Rs11800/(10000+1800)

GST Benefit: - Now you no need to pay GST i.e. Rs 1800/ so saving of Rs 1800/ now your actual premium is Rs10000/ only, if you wish you can increase your risk cover with same premium of Rs 11800/. Still, you can claim Tax benefit under Secon 80D & Section 80C..

Impact of GST rate on Life Insurance?

In Life Insurance It varies based on type of Insurance cover:-

• Term Insurance: - Earlier 18% on total premium, now it is nill i.e. 0%

• Endowment Plan: - Previously it was tiered GST rates (e.g., 4.5% on the first-year premium, 2.25% subsequently), but are now fully exempt.

• ULIP Plans: - In ULIP it was applied mainly on Mortality charges, fund management charges, allocation charges @ 18% but now its ZERO.

No Relief in Group Insurance Policy:

GST benefit does not apply to Group policy as it is considered as a business expenses or benefit provided by employer not a direct purchase retail customer. Hence GST remains 18% on Group polices.

GST Impact on Tax Benefit:No Relief in Group Insurance Policy:

GST Impact on Tax Benefit:

GST reduction does not impact the income tax benefits under Section 80C, Section 80D.

This decision embarks the new journey towards financial inclusion, affordable Insurance and better health and life security for millions of citizens aiming “Insurance for all by 2047”

Views expressed here is personal, and tried to bring clarity on GST, for any tax related matter prevailing Income Tax law will apply.