GST on Money Back Policy

Table of Content

1. What is a Money Back Policy?

2. What is GST on Money Back Policy?

3. Changes in GST Rates for Money Back Policies before and After the Reform

4. Reasons Behind the Removal of GST from Money Back Policy Premiums

5. Impact of GST Reforms on Policyholders

6. Impact of GST Reform on Insurance Companies

7. Comparison of Old and New GST Reform on Money Back Policies

8. How to Maximize the Policy Benefits

9. Frequently Asked Questions (FAQs) on GST on Money Back Policy

What is a Money Back Policy?

A money back policy is a unique life insurance plan. This plan provides the dual benefit of protection and savings. It not only provides life cover but also pays periodic benefits throughout the policy term, helping you meet short-term goals while remaining insured.

For instance, a money back policy of ₹1 crore, now with 0% GST, becomes more affordable and rewarding, offering both coverage and cash returns at periodic intervals. This makes it a prudent choice for those who wish to build savings through long term investment while ensuring financial security for their loved ones in the scenario of any unforeseen event.

What is GST on Money Back Policy?

The GST on money back policies refers to the Goods and Services Tax, which is applied to the premium amount paid for such policies. Previously, policyholders were charged GST of 18% on top of their base premium. This charge increased the total cost. For instance, a first year premium of ₹15,000 would become ₹15,675 post adding GST of ₹675, making the policy heavier on the pocket. In case of money back policies, taxable value is calculated at 25% of first year’s 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 these 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

But according to the latest GST reforms , which are in effect from 22nd September 2025, the tax on money back policies has been brought down to a GST rate of 0%. This means policyholders will have to bear just the base premium, i.e., ₹15,000 in this case, with zero need for paying any additional tax burden.

This change minimises total premium costs, offers immediate savings, and makes money back policies far more affordable. For many middle-income earners, this reform endows much-needed financial relief. It makes it simpler to invest in life insurance that offers protection, regular returns and long-term economic stability.

Changes in GST Rates for Money Back Policies before and After the Reform

The GST reform on money back policies comes across as a significant win for policyholders. Previously, as mentioned, premiums were taxed at4.5%/2.25% GST. But from 22nd September 2025 onwards, the rate has fallen to 0%, offering thorough tax relief.

This change infers savings on new policies as well as renewals, which eases the financial load for many. The transformative measure is an essential note, and it makes insurance accessible and affordable for everyone.

Reasons Behind the Removal of GST from Money Back Policy Premiums

The government’s move to remove GST from money back policy premiums stems from its agenda to make insurance affordable and inclusive for all. Earlier, policyholders had to make a payment for the GST rate. This premium rate was 4.5%/2.25%, which made such plans costly, particularly for low- and mid-income families. With a GST rate of 0%, the government aims to ease the financial stress and burden and make life insurance an accessible product.

This reform supports financial inclusion and encourages more and more individuals to invest in insurance policies and savings plans that not just endow life protection but also assist in building savings via periodic returns. 

For instance, consider a policy having an annual premium equal to ₹40,000. Previously, it cost ₹41,800, after adding GST of ₹1800. Now, with 0% GST, the exact policy costs ₹40,000. This permits the policyholder to save ₹1800 on the first year premium while ₹900 on the subsequent premiums. Such saved funds can be redirected towards meeting other essential goals.

Also, such a change lines up perfectly with the broader vision of the government to enhance insurance penetration throughout India, particularly in underserved and rural regions. By making money back policies affordable, the reform encourages financial planning and long-term security for millions who previously found such protection out of reach.

Impact of GST Reforms on Policyholders

The current GST reform has brought a wave of relief for policyholders, which makes money back policies affordable and financially rewarding than ever before.

Reduced Premium Costs

With the removal of GST, money back policy premiums have become considerably cheaper now. Families now can enjoy direct savings of around 4.5%/2.25%, freeing up funds for other financial goals. For example, earlier the first year premium cost was ₹15,675 (₹15,000 + ₹675 GST). Now, the price is ₹15,000 (flat), which makes insurance budget-friendly.

Enhanced Affordability for Policyholders

This reform brings insurance within reach for more and more people, particularly for those from mid- and lower-income groups. It supports the vision of the government, i.e., “Insurance for All by the year 2047”, which ensures that financial protection no longer stays a luxury but a necessity accessible to each and every household.

Long-Term Financial Benefits

Also, existing policyholders will benefit from lower renewal premiums, easing financial pressure over a long time. Such savings can be redirected towards other goals like higher education, retirement corpus creation or various other family priorities, which promotes stronger long-term financial planning as well as security.

Impact of GST Reform on Insurance Companies

The GST reform does not just benefit policyholders; it is also reshaping how insurance companies operate as well as compete in the market.

Removal of Input Tax Credit (ITC)

With GST removed from money back policy premiums, insurers can no longer claim Input Tax Credit (ITC) on expenditures such as advertising, commissions and administrative expenses. While this may slightly increase internal expenses, most insurers are expected to balance the impact through improved operational efficiency and cost optimisation.

Effects on Profit Margins

The loss of ITC might result in a minor dip in profit margins. But the thorough impact remains limited. The surge in policy demand owing to lower premiums is likely to offset such costs, assisting insurers in maintaining steady profitability.

Increased Demand and Sales Growth

The shift to GST of 0% makes policies affordable. This drives higher sales and customer acquisition. Such an increased demand could result in more stable cash flow for insurers.

Market Competitiveness

Insurers that adapt fast to the reform by promoting affordable premiums and introducing innovative money back plans will acquire a competitive edge, expanding their market share and customer trust.

Comparison of Old and New GST Reform on Money Back Policies

The GST reform on money back policies brings a significant shift for policyholders. Earlier, premiums carried an 4.5%/2.25%GST, which increased the total cost.

But beginning 22nd September 2025, individual money back policies will attract GST of 0%, resulting in direct savings and more affordable premiums. While group policies will still carry 18% GST, this reform is a significant win for individuals looking for long-term family protection at lower costs.

How to Maximize the Policy Benefits

With the GST of 0% on money back policies, premiums are now more affordable than before, offering a good chance for immediate savings. Policyholders can examine prevailing policies or buy new ones to lock in these benefits and make the most of their investment. Acting quickly ensures maximum advantage from this reform.

Review and Update Your Current Policies

Policyholders must evaluate examinations and renew prevailing money back policies before the reform’s official date to lock in GST savings of 0%. This ensures lower premiums moving forward and uninterrupted access to the policy’s benefits. Renewing now assures that you do not miss out on the immediate financial relief as well as the enhanced affordability the reform offers.

Strategize Your New Policy Purchases

For those planning to buy a new money back policy, now is the perfect time to act. The GST of 0% provides premium savings, which makes it an affordable product to secure cover. By purchasing now, policyholders can maximise benefits over the long-term period, efficiently build savings and ensure a financially secure future for themselves as well as their families.

Frequently Asked Questions (FAQs) on GST on Money Back Policy

Is a money back policy taxable?

Yes. Money back policies were subject to GST, with a tax chargedequalling4.5%/2.25% on premiums. This meant that policyholders had to make an additional payment on top of the base premium, which increased the total policy's cost.

What is the new GST rate on money back policies?

From 22nd September 2025, the GST on individual money back policies has been reduced to 0%, making these policies highly affordable and minimising total premium costs for policyholders.

Does the new GST reform apply to both new and existing money back policies?

Yes. The reform benefits both new policyholders and the ones renewing prevailing individual money back policies, permitting everyone to enjoy immediate savings on premiums. Group policies, however, may still attract 18% GST.

What happens if I have already paid GST on my policy before the reform?

If GST was paid before 22nd September 2025, then it will not be refunded. But renewals or new policies bought post this date will get the benefit of 0% GST, which will result in savings for policyholders going forward.

Will the policyholder’s claim amount change due to the 0% GST?

No. The claim amount or policy benefits remain unchanged. The GST reform just reduces the premium cost, ensuring affordability while maintaining the same cover and periodic payouts.