Insurance Gets Cheaper: Zero GST on Health and Life Policies - What It Means for You

In an important development in personal finance in India, Goods and Services Tax (GST) on health and life insurance policies is set to drop to 0. The 18% tax, which you have been charged on your premiums, will soon be removed, making basic financial protection affordable for millions. This blog looks at what this reform means to your budget and how it can be best used.

What is the New GST Reform?

The Goods and Services Tax (GST) on individual health and life insurance premiums has been fully removed. This exemption is granted to all individual life insurance policies (including term life, ULIPs, and endowment policies), along with all individual health insurance policies, including family floater policies, policies for senior citizens, and reinsurance thereof.

The reform will come into operation on 22nd September 2025, and is part of a larger reform to simplify the GST structure. The revised structure consists of a broad two-slab structure of 5% and 18%, with a 40% rate for sin, super luxury, and demerit goods like luxury cars, tobacco, high-end liquor, etc.

This move marks a major change in India’s approach towards keeping insurance within the reach of the common man. It emerged from the 56th meeting of the GST Council held over September 3 and 4 and reflects the commitment of the government to increase access to insurance across the country.

Also Read: Impact of GST on Gold Loan Interest and Charges in India

What Zero GST on Health and Life Policies Means for You

The removal of GST has a direct and positive impact on your finances. It’s not just a small discount; it’s a substantial saving that empowers you to make smarter financial decisions. Here’s a quick breakdown of the benefits:

Lower Premiums:

The most immediate benefit is a clear reduction in your expenses. Currently, a hefty 18% GST is added to your premium cost. With this reform, that extra amount will vanish.

To put it into perspective, imagine your annual health insurance premium is a base of ₹25,000. With the current 18% GST, your total outgo is ₹29,500. After the reform, you’ll pay just the base premium of ₹25,000 in theory. That’s an instant saving of ₹4,500 every single year of money that stays directly in your bank account.

Also Read: Administrative Structure of GST in India

Increased Affordability:

For many Indian households, the cost of insurance has been a significant barrier. This 18% tax made an essential service feel like a luxury, forcing many to either opt for inadequate cover or postpone the purchase altogether. As per a 2021 NITI Aayog report, over 30% of the Indian population had absolutely no financial protection for health.

The zero-GST rule changes this dynamic completely. It makes both health and life insurance far more accessible, especially for young professionals, single-income families, and first-time buyers. That crucial financial safety net is no longer just out of reach; it’s an affordable and attainable necessity that you can now benefit from.

Opportunity for Better Cover:

This is where you can be truly strategic. Instead of simply pocketing the savings, consider reinvesting them into your policy for a massive upgrade in protection. You essentially have two choices: pay less for the same cover or pay the same for much better cover.

Using our earlier example, that saved ₹4,500 could be used to increase your sum assured significantly. It might allow you to increase your health cover by several lakhs or add a crucial rider, such as critical illness protection, to your term plan. This is the smartest way to leverage the reform, giving your family a much stronger financial shield without increasing your budget.

Improved Household Cash Flow:

Lower insurance premiums mean more disposable income each month or year. This isn’t just ‘spare cash’; it’s freed-up capital that can be put to work to strengthen your overall financial position.

Think about what that extra money could do. It could be channelled into a Systematic Investment Plan (SIP) to accelerate your wealth creation goals. You could use it to build your emergency fund faster or make an extra payment on an existing loan to become debt-free sooner. This single change can create a positive ripple effect across all your financial planning efforts.

Also Read: Everything You Need to Know About GST on Loans

An Important Consideration

In principle, the removal of the 18% GST means insurance holders’ premiums should fall by 18%. However, this would still depend on how insurers decide to structure their products due to not being able to claim Input Tax Credit (ITC). Up until now, insurers have managed to lower their GST obligations by deducting input tax credits against collected GST and making a net payment to the government. Here’s how it works:

An insurer collects ₹10 Lakh GST on insurance premiums. But the insurer also has to spend a total of ₹6 Lakhs GST on operational expenses like outsourced call centres, office rent, logistics, agent commissions, software, etc. This amount is deducted from the insurer’s GST obligation as input tax credit. This makes the net payment to the government a total of ₹4 Lakh.

The GST loss means insurance companies lose the benefit of offsetting paid GST on operational expenses, effectively facing higher expenses. As a result, they may consider adjusting base premiums or restructuring insurance products to maintain their margins.

In a nutshell, consumers may not yet completely benefit from the 18% GST reduction. Regardless, the wider direction is moving towards insurance becoming more affordable, and consumers are likely to see the full benefit in the long run as demand increases.

To Conclude

The removal of GST on health and life insurance is a welcome reform that puts more power in your hands. It makes securing your health and your family’s future not just a priority but an affordable reality. By understanding the benefits and strategically using the savings, you can turn this policy change into a powerful tool for building a robust and lasting financial safety net.

Frequently Asked Questions

Does this zero GST rule apply to all types of insurance policies?

No, the zero GST rule does not apply to all types of insurance policies. The reform is specifically targeted at health insurance policies and pure life insurance policies like term insurance plans.

How much money can I expect to save on my premiums?

You can expect to save up to 18% on your premium amount. For every ₹10,000 of your base premium, you will save ₹1,800. The higher your premium, the more significant your savings will be.

Why was GST removed from life and health insurance?

The primary objective of this move is to reduce the cost of essential financial protection and increase insurance penetration in India. By making these products more affordable, the government aims to encourage more citizens to secure themselves against health risks and life uncertainties.

Can I use the savings to buy more insurance cover?

Yes, you can use the savings to buy more insurance cover. One of the best ways to use the savings is to approach your insurer to increase your sum assured. This allows you to get enhanced protection for your family without increasing your overall budget.