GST on Endowment Policy

Table of Content

1. What is an Endowment Policy?

2. What is GST on Endowment Policy Premiums?

3. Types of Endowment Policies

4. GST Rates for Endowment Policies: Before vs. After Reform

5. Why Was GST Removed from Endowment Policy Premiums?

6. Possible Impact of GST Reforms on Policyholders

7. Possible Impact of GST Reforms on Insurers (Insurance Companies)

8. Old GST vs New GST Reform on Life Insurance Policies

9. How to Maximize Your Policy Benefits

10. FAQs on Endowment Policy

What is an Endowment Policy?

An endowment policy is a prudent blend of life insurance and savings. It not only safeguards your family financially in the scenario of any uncertainty but also assists you in building a corpus for future goals. Think of it as a safety net and a savings plan that are rolled into one. 

For instance, a ₹1 crore endowment cover could cost less than your regular coffee spend and with a GST of 0%, it is now even more affordable. Such policies are best for the ones who want protection with planned wealth accumulation over time, especially if they prefer a more conservative, disciplined savings approach rather than taking high investment risks.

What is GST on Endowment Policy Premiums?

The GST on endowment policy premiums refers to the Goods and Services Tax applied to the insurance premiums you pay for your endowment plan. It’s an indirect tax that was earlier added to your total premium cost.

Until 22nd September 2025, endowment policies were taxed at a GST of 4.50% on the first year premiums while subsequent premiums were taxed at 2.25%. This meant that if your premium was ₹10,000, you had to pay an additional ₹450 as GST, making the thorough total ₹10,450. In case of endowment policies, taxable value is calculated at 25% of first years premium and therefore the GST rate works out to 4.5% (18% of 25). In case of subsequent premiums, taxable value is calculated at 12.5% of premium and therefore the GST rate works out to 2.25% (18% of 12.5). In a nutshell, in case of endowment plans while the GST rate is 18%, the value on which tax is applied is a percentage of premium rather than the whole premium as compared to other insurance plans like term, health, etc.

However, the new GST reform on endowment policies has brought great welcome relief for policyholders. From 22nd September 2025 onwards, the GST rate on endowment policy premiums has been minimised to 0%.

Here is what this means:

• Before Reform: ₹10,000 (first year premium) plus ₹450 GST = ₹10,450
• Post Reform: ₹10,000 (premium) (no GST)

The 0% GST on an endowment policy makes insurance extremely affordable and accessible. This encourages more individuals to secure their financial future with zero stress of bearing additional tax.

Types of Endowment Policies

Endowment policies come in various types. Each of the types is tailored to match distinct financial goals and comfort levels. With GST of 0% on individual endowment policies (effective from 22 September 2025), such plans have become more attractive and affordable. Let’s take a look at the popular types available in the market:

• With-Profit Endowment

Such plans share the profits of insurer with you via bonuses, which are added to your maturity benefit or paid to your nominee in scenario of demise. They are great for people interested in long term investment who want steady returns and holistic coverage.

• Low-Cost Endowment

This type offers basic life cover with a smaller savings component. It is a budget-friendly option for the ones who want protection with zero need for stretching their finances too far, particularly now with 0% GST.

• Non-Profit Endowment

A simple plan, it does not include bonuses or profit-sharing, but still offers an assured lump sum at maturity. It is well-matched for individuals who prefer clarity and predictability.

• Guaranteed Policy

This plan assures a fixed sum at maturity, irrespective of market changes. It’s perfect for those who value stability, guaranteed returns, and a risk-free savings route.

• Limited Premium Payment Endowment Policy

Here, you pay premiums for a limited duration, yet make the most out of the cover for the whole policy term. It is curated for the ones who prefer short term investment or payment commitments while keeping long-term protection intact.

• Money Back Endowment Policy

  The Money Back policy pays back a portion of the sum assured at periodic intervals, which assists you in fulfilling life goals like education or travel. You still get the remaining amount at the maturity time. This ensures high liquidity and life cover in one.

  Each of these endowment plans are now exempt from GST when purchased or renewed as an individual life insurance policy on or after 22 September 2025, which makes them cost-effective and rewarding for policyholders.

GST Rates for Endowment Policies: Before vs. After Reform

Are you really curious how the current GST changes will affect your endowment policy? Let’s break this down in simple words so you can view the savings at a glance.

Before the reform, individual endowment policies had a 4.5%/2.25% GST, which added a notable extra cost to your premiums. But as of 22nd September, 2025, onwards, the government has exempted individual endowment policies from GST. It has brought down the rate to 0%! This means your policy becomes affordable without changing the benefits you enjoy.

Here’s a snapshot for clarity:

What this implies:

• Lower premiums for the same cover
• Simpler financial planning for goals spanning over five years and above (long-term goals)
• Exclusive benefit for individual policies (group policies are not impacted)

So, if you have been looking for an endowment plan, right now is the correct time to lock in your policy and enjoy 0% GST savings!

Why Was GST Removed from Endowment Policy Premiums?

The move of the government to remove GST from individual endowment policies is not just an essential move to bring about tax reform; it is aimed at making insurance accessible, affordable and practical. Here is why it matters:

1. Increase Accessibility: By removing the GST, endowment policies have become affordable. Note that it has become economical, particularly for mid and lower-income groups, who now can plan out for the future with zero need for stretching their budgets.

2. Promote Financial Security: Life cover is a must to add to one's portfolio, and lower premiums encourage more and more individuals to invest in long-term protection. This secures the family's future.

3. Support Financial Inclusion: The reform lines up with efforts to bring insurance to all segments of society, which ensures more individuals make the most out of such financial planning tools.

4. Ease Financial Pressure: Families witnessing rising living expenditures now can manage premiums in a comfortable manner. They can do so while safeguarding their loved and dear ones.

Here’s an example of the impact:

• Before 22nd September 2025: Premium of ₹30,000 plus GST of ₹1350, totals to ₹31,350 
• Post the reform: Premium of ₹30,000 plus 0% GST, totals to ₹30,000 (₹1350 savings on the first year premium and ₹675 on the subsequent premiums)

Over a period of 20 years, this brings considerable savings to the policyholder which could be redirected to other goals. Such goals might be higher education or retirement planning.

GST removal is not just about lower premiums; it is a step toward achieving financial security in the long term

Possible Impact of GST Reforms on Policyholders

The GST reform on individual and life-insurance endowment policies has brought welcome relief to policyholders. This makes life insurance affordable and accessible for everyone. Here is how such changes will benefit you:

Reduced Premium Costs

With the GST equalling 0% premiums of eligible individual life insurance plans (including endowment policies) from 22 September 2025, premiums now are around 18% cheaper than before. For instance, a policy with a premium equalling ₹10,000 earlier cost ₹10,450 (₹10,000 + ₹450 GST). Now, with zero GST, you pay just ₹10,000 flat, minimising the total financial outgo for families and individuals.

Enhanced Affordability for Policyholders

This reform has made endowment policies budget-friendly, particularly for mid and low-income families who tend to hesitate to invest because of high expenditures. The move even supports the government’s vision of “Insurance for All by 2047,” which encourages wider insurance adoption throughout India.

Long-Term Benefits for Current Policyholders

Prevailing customers, too, will view the difference; their renewal premiums will now be lower, easing the burden of annual or half-yearly payments. This ensures that maintaining coverage over the long-term becomes simpler, more sustainable and lighter on the pocket.

Possible Impact of GST Reforms on Insurers (Insurance Companies)

The 0% GST reform on endowment policies does not just benefit policyholders; it also reshapes the vertical for insurers. While it brings some operational adjustments, the thorough outlook stays positive for the insurance sector.

Removal of Input Tax Credit (ITC)

With GST removed from individual endowment policies, insurers can no longer claim Input Tax Credit (ITC) on their operational expenditures. 

Such expenses are marketing, advertising, and agent commissions. This implies that while policyholders save on premiums, insurers might experience a slight increase in internal costs, as these expenses can no longer be offset by ITC claims.

Effects on Profit Margins

Although the loss of ITC adds a marginal increase to operational expenses, its impact on profitability is anticipated to be minimal. The fall in premium rates will result in higher policy uptake, which can balance out the cost increase through higher sales volumes and ameliorated cash flows.

Increased Demand and Sales Growth

Lower premiums make endowment policies thoroughly more appealing to potential buyers. As affordability ameliorates, demand for insurance is anticipated to surge, particularly among first-time policyholders. This growth in sales not only helps insurers recover their additional expenditures but could even expand their customer base, strengthening long-term industry growth.

Old GST vs New GST Reform on Life Insurance Policies

The GST on endowment policy premiums has undergone a significant transformation. Earlier, individual policies were taxed at a GST of 18%, increasing the total premium cost. Starting 22nd September 2025, the new GST reform lowers this rate to 0%, which makes endowment plans highly affordable for individuals looking for life cover and savings benefits.

How to Maximize Your Policy Benefits

With the GST equalling 0% on individual endowment policies in effect from 22nd September 2025, policyholders can now get affordable premiums and better financial flexibility. By taking a few prudent measures, you maximise savings, ensure continuous cover and strengthen your financial plan.

Review and Renew Your Existing Policies

Now is the best time to examine your existing endowment policies. If your policy is due for renewal, do it right away to make the most of the 0% GST benefit. As the reform is already in effect, renewing your policy now means lower premium expenditures on all future payments. 

This ensures your cover continues smoothly, without any additional tax burden, while keeping your savings intact.

Plan Your New Policy Purchases

If you are considering buying a new endowment policy, there is no reason to wait. With the new GST on endowment policy fixed at 0%, you can easily begin your policy today and benefit from minimised premium expenditures. Acting now assists you in locking affordable cover, building long-term savings and making the most out of this cost-saving reform.

FAQs on Endowment Policy

1. What is the new GST rate on endowment policies?

The new GST on endowment policies has been reduced to 0% from 18% for individual policies, effective 22nd September 2025. This means policyholders no longer make payment of additional tax on premiums, which makes endowment plans affordable while keeping life cover and savings benefits intact.

2. Does the GST reduction apply to all types of endowment policies?

The GST of 0% benefit particularly applies to individual endowment policies. Group policies/ corporate insurance plans are not covered under this reform. This change benefits individual policyholders, ensuring reduced premiums as well as improved accessibility for personal financial planning.

3. How does the new GST on endowment policies compare to term insurance?

Until recently, both term insurance and endowment policy premiums for individual life-insurance plans attracted GST (typically 18% on the taxable value of premium). From 22 September 2025, the GST on life insurance policies - including term and endowment plans—has been reduced to 0%. This reform improves affordability across the board: pure protection plans (term) and protection with savings plans (endowment) both benefit from elimination of additional tax costs, making life cover and savings more accessible to policyholders.” 

4. Will there be an immediate reduction in endowment policy premiums?

Yes! With the GST of 0% on endowment policy premiums in effect from 22nd September 2025, insurers are required to adjust premiums instantly. This means policyholders will pay less on renewals as well as new policies, which makes life cover cost-effective right away.

5. Will the new GST reforms impact my tax savings through endowment policies?

No. The tax benefits as per Section 80C of the Income Tax Act, 1961 stay unchanged if opted under Old Tax Regime. The GST of 0% just minimise the premium cost, permitting policyholders to save on payments while still enjoying complete tax deductions on eligible contributions.