In a major relief for policyholders across India, the Goods and Services Tax (GST) on individual health and life insurance policies will be reduced to zero starting September 22, 2025. The reform, approved during the 56th GST Council meeting, is expected to make insurance significantly more affordable and boost penetration in a market where coverage remains low. Insurers have confirmed that they will pass on the full benefit to customers, resulting in direct savings of up to 18 percent on premiums.
The move is part of a broader GST rationalization strategy aimed at simplifying tax slabs and easing financial burdens on households.
Key Highlights From The Reform
- GST on individual health and life insurance policies will drop from 18 percent to zero from September 22
- The change applies to term life, endowment, ULIP, family floater, and senior citizen policies
- Insurers will pass on the full benefit to policyholders, reducing premiums by nearly 18 percent
- The reform coincides with the start of Navratri and is expected to drive festive-season purchases
- Group insurance policies, such as employer-sponsored schemes, will continue to attract 18 percent GST
Impact On Premiums And Household Budgets
The removal of GST will directly reduce the cost of purchasing or renewing insurance policies. For example, a health insurance policy with a base premium of Rs 30,000 currently costs Rs 35,400 after GST. From September 22, the same policy will cost Rs 30,000, saving the policyholder Rs 5,400.
- Term life policies will become more accessible for first-time buyers
- Senior citizens and retirees stand to benefit most due to typically higher premiums
- Family floater plans will see substantial savings, encouraging wider adoption
- ULIP and endowment policyholders will also enjoy reduced upfront costs
Industry Response And Operational Adjustments
Leading insurers including LIC, HDFC ERGO, Bajaj Allianz, and ICICI Lombard have welcomed the reform and confirmed that systems are being updated to reflect the new pricing structure. While insurers will lose access to input tax credits on operational expenses, they have committed to absorbing the impact and ensuring full pass-through to customers.
- Insurers are revising premium calculators and digital platforms ahead of the rollout
- Marketing campaigns are being planned to highlight the reduced pricing
- Agents and brokers are being trained to communicate the benefits to prospective buyers
- Some insurers may offer bundled discounts to further incentivize early renewals
Regulatory Context And Policy Intent
The GST Council’s decision to eliminate tax on individual insurance policies reflects a shift toward social protection and financial inclusion. The move is aligned with the government’s goal of achieving universal insurance coverage by 2047 and reducing out-of-pocket healthcare expenses.
- Finance Minister Nirmala Sitharaman described the reform as a step toward easing household financial stress
- The Council also simplified GST slabs from four to two, with insurance placed in the zero-rated category
- The reform is expected to increase insurance penetration, which currently stands at just 4.2 percent in India
What This Means For Policyholders
For millions of Indians, the GST exemption marks a turning point in how insurance is perceived and accessed. With premiums set to drop substantially, more families are likely to consider coverage for health, life, and long-term financial planning. The timing of the reform, ahead of the festive season, could further amplify its impact.
Sources: ICICI Lombard, Economic Times, Livemint
