0% GST on health, life insurance: What the cut from 18% means for you

In a big relief for policyholders, the Goods and Services Tax (GST) on individual health and life insurance premiums has been slashed to zero. The decision was made during the 56th GST Council meeting held on Wednesday and will come into effect from September 22, 2025.

This means the 18 per cent GST that is currently added to your insurance premium will no longer apply. The change is expected to directly reduce the total amount paid by consumers, making insurance more affordable for individuals and families.

Consensus among states, relief for families

Union Finance Minister Nirmala Sitharaman said the decision was taken unanimously by the Council.

“This was so much questioned last year. In parliament, Opposition members questioned, saying, ‘You want to tax insurance premiums?’ After a detailed study, taking stakeholders into confidence, we have come up with this so that families and also people who take individual insurance get the benefit,” said Sitharaman.

She added, “Of course, we will make sure that companies pass on this benefit to people who are taking insurance. We want to give people who are looking to get medical insurance the relief.”

What it means for policyholders

Currently, if the base premium is ₹200, the final amount paid after adding 18 per cent GST comes to ₹236. This means the tax alone adds ₹36 to the cost of the policy. With GST now reduced to zero, the total payable will simply be the base premium, making insurance more affordable for individuals and families.

HSBC’s analysis suggests the GST waiver could lower health insurance premiums by about 15 per cent. But the government may see a revenue loss of around USD 1.2–1.4 billion annually, as per the same report.

Insurers welcome the move

Insurance companies have responded positively to the Council’s decision.

“The GST Council decision to exempt individual health insurance from GST is a welcome development,” said Samir Shah, executive director and CFO, HDFC ERGO General Insurance Company Limited.

“From a consumer standpoint, the immediate benefit is that it directly translates to enhanced affordability. By reducing the cost barrier, we anticipate a substantial increase in accessibility,” Shah added.

Dr Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance, said, “This step directly benefits citizens and eases the financial burden on families. It is also in complete alignment with the vision of Insurance for All by 2047. This progressive decision will accelerate insurance penetration and strengthen the nation’s health security.”

Greater affordability, wider access

Narendra Bharindwal, president of the Insurance Brokers Association of India (IBAI), called the move a historic step toward universal insurance inclusion.

According to him, GST exemption on term life, ULIPs, endowment, individual health policies, family floater and senior citizen plans will:

• Make insurance more affordable for households across all income groups

• Support India’s goal of “Insurance for All by 2047”

• Provide relief to senior citizens who rely heavily on health insurance

• Allow policyholders to opt for higher sum insured amounts, increasing overall protection

Hanut Mehta, CEO and co-founder at BimaPay Finsure, said, “The reduction in price also makes room for people to consider higher sum insured. With lower overall premiums, customers may opt for greater coverage.”

But input tax credit concerns remain

Not everyone is fully upbeat, though. One concern being raised is around the absence of input tax credit (ITC) for insurers.

“On the insurer side, the absence of input tax credit will increase their operational cost. Over time, some of these costs may flow into base premiums,” Mehta said.

ITC allows businesses to claim credit for GST paid on goods and services used in their operations. Insurance firms typically pay GST on various overheads such as office rent, commissions, IT systems, claims processing, and medical network services.

Shah from HDFC ERGO said, “We are closely analysing the implications concerning the input tax credit. While it is anticipated that there will be lowering of the premiums due to lowering of the taxes, we are yet to understand the extent of this reduction as this will also depend upon availability of the input tax credit, which will become clearer over the coming days.”