GST on Life Insurance Premium

Table of Content

1. How Do Goods and Services Taxes (GST) Affect Insurance Policies?

2. How a Life Insurance Policy Can Help You Save Taxes?

3. GST on Life Insurance Premium Before and Now

4. What is Life Insurance?

5. How GST Differs Across Various Types of Life Insurance?

6. Possible Impact of GST Reforms on Insurance Policyholders

7. Possible Impact on Insurers (Insurance Companies)

8. FAQs on GST on Life Insurance Premium

Until now, life insurance and health insurance policies in India have been subject to an 18% Goods and Services Tax (GST), which has increased the overall cost of premiums. However, with the Next-Gen GST reform proposed to be effective from September 22, 2025, it has been recommended by the GST Council^{^} that GST on all individual life insurance, including GST on term insurance, and health insurance policies be reduced from 18% to 0%, making policies more affordable for millions of Indians. For first-time buyers or families planning financial security, this reform ensures that investing in life insurance is easier and more budget-friendly than ever before.

Let us continue reading to learn about the details of exemption of GST on life insurance premium.

How Do Goods and Services Taxes (GST) Affect Insurance Policies?

Before the 2025 GST reform, life insurance products were subject to an 18% GST levy, making them more expensive for middle-income groups. However, from 22nd September, the new GST on life insurance premiums for individual life and health insurance is exempt from GST.

For example, earlier, if you had bought an individual life insurance plan worth ₹10,000, including GST, you would have had to pay a premium of ₹11,800. Now, with updated GST on life insurance, you only have to pay ₹10,000 as your life insurance premium. 

It is crucial to remember that this new GST on life insurance is only applicable for individual covers. For group insurance plans, including employer-sponsored life or health schemes, the GST of 18% continues to be levied. 

How a Life Insurance Policy Can Help You Save Taxes?

Here is how a life insurance policy can help in saving taxes:

• Section 80C

As per Section 80C# under the Income Tax Act (1961), life insurance policyholders can claim up to ₹1.5 Lakh deduction per annum for premiums paid towards those plans, subject to other conditions.

• Section 80CCC

As per Section 80CCC# of the Income Tax Act, 1961, policyholders can claim deductions of up to ₹1.5 lakh on premiums paid towards a contribution to pension funds.  

However, you will get a combined deduction of Rs. 1.5 Lakh under sections 80C^#, 80CCC and 80CCD(1) as specified under Section 80CCE^#.

• Section 10(10A)

According to Section 10(10A) of the Income Tax Act^#, government employees or those who receive pensions from life insurance company funds can get a tax exemption. This rule applies only when they take out a lump sum as part of their commuted pension. To avail of such benefits, specific rules must be followed. 

• Section 10D

As per Section 10(10D) of the Income Tax Act, 1961^#, payouts received from life insurance policies as a death benefit are fully tax-exempt. In most cases, even maturity benefits are also tax-free under this section, subject to conditions.

• Additional Benefit with 0% GST

With the recent reform reducing GST on life insurance premiums from 18% to 0%, policyholders can now save even more because premiums themselves have become cheaper. This makes life insurance more affordable while helping you save tax and protect your family’s financial future at the same time.

GST on Life Insurance Premium Before and Now

As part of the government’s GST reforms on life insurance, the 56th GST Council Meeting announced a significant tax cut, reducing the GST on individual life and health insurance premiums from 18% to 0%, proposed to be effective from September 22, 2025. This landmark decision will make all major life insurance products, from term plans to ULIPs, significantly more affordable for customers

This apparent reduction in GST rates means immediate savings for policyholders and encourages wider adoption of life insurance in India.

What is Life Insurance?

Life insurance is mainly an agreement between you and the insurance company. You pay regular premiums, and in exchange, the insurer guarantees a financial payout to your beneficiaries or family members if something unexpected happens to you. 

For instance, if you hold a life insurance policy of ₹50 lakh and the unexpected occurs, your family would get this payment. You can use this money to pay for daily expenses, settle debts, or even finance long-term objectives such as education for your children or old age security. When put in plain words, it serves as a financial cushion that leaves your family secure, regardless of what happens.

How GST Differs Across Various Types of Life Insurance?

With the reforms of the GST rates on life insurance, reducing the tax from 18% to 0%, all individual life insurance products have become more affordable, making financial protection easier for everyone. Below are the main types of life insurance available in India:

• Term Insurance

This is the most basic and cheapest form of life insurance. It pays your beneficiaries a death benefit if you pass away during the policy's duration. Term insurance is best suited for people who desire basic, high-coverage financial security at a low premium.

For example, for an annual premium of Rs. 10,000, you previously had to pay Rs. 1,800 in GST (18% of the premium). However, following recent GST changes, you are no longer required to pay this additional amount.

Whole Life Insurance

A whole life insurance policy generally offers lifelong protection with a growing cash value in the long term. You invest premiums throughout your life, and your family gets a death benefit whenever an incident occurs. This is ideal for individuals seeking long-term protection along with savings.

Let us consider an example -

A 40-year-old buys a whole life policy with a ₹25 lakh sum assured; the policy covers them for life while building a cash corpus for emergencies.

• Endowment Plans

Endowment policies combine life insurance with savings. If you survive the policy term, you receive the maturity amount; if not, your family gets the death benefit. They are popular for achieving long-term financial goals, such as education, weddings, or retirement planning.

Example - A parent invests ₹5,000/month in an endowment policy for 15 years to accumulate a lump sum for their child's college expenses. Earlier endowment premiums attracted 18% GST, now reduced to 0%.

• ULIPs (Unit-Linked Insurance Plans)

ULIPs combine insurance coverage with market-linked investments. A portion of your premium provides life insurance coverage, and the remainder is invested in equity or debt funds to grow your wealth. These plans are ideal for policyholders seeking insurance plus investment. Following, recent GST reforms, GST on individual ULIP premiums has also been exempted, effective September 22, 2025.

• Pension/ Retirement Plans

These plans help you save systematically for retirement. They provide a steady income stream or lump sum payouts post-retirement, ensuring financial security in your later years. 

Here is an example to understand it better - 

 A 35-year-old contributes ₹3,000/month to a pension plan, allowing them to receive a monthly income after reaching the age of 60, with no GST charges. Previously, these pension plans were subject to GST, but they are now GST-free following the recent reforms.

• Child Insurance Plans

This is specially designed to secure your child’s future; these policies combine savings and insurance. They offer a death benefit plus maturity proceeds for future needs like education and marriage, giving parent’s peace of mind about their child’s financial well-being.

Example - Parents invest in a child plan that guarantees ₹10 lakh at age 18 to fund higher education, even if the parent isn’t around, can now do so without paying any GST on the premiums, following the recent GST reforms.

Possible Impact of GST Reforms on Insurance Policyholders

The move to 0% GST on life insurance premiums from 18% is not just a tax change; it directly impacts how much you pay and what you can afford. Here is how it benefits customers:

• Lower Premiums

With GST removed, your premium payments will drop immediately. For example, a term plan with a premium of ₹10,000 plus 18% GST (₹1,800) will now cost only ₹10,000. This makes policies far more affordable, especially for first-time buyers or people with limited disposable income.

• More People Can Afford Insurance

Lower premiums mean that a wider section of society can now afford to purchase life insurance. This supports the government’s vision of “Insurance for All by 2047^{^^",} increasing financial inclusion and protection for underserved groups.

• Benefits for Existing Customers

If you already own a life insurance policy, you will feel the difference at your next renewal. Your premium will be recalculated without GST, reducing your out-of-pocket expense while keeping your cover unchanged.

Possible Impact on Insurers (Insurance Companies)

While policyholders benefit from 0% GST on life insurance premiums, insurance companies will also see changes in their operations and strategies:

• No Input Tax Credit (ITC)

Under the old 18% GST regime, insurers could offset some of their GST payments through input tax credit on services they used. With GST removed from premiums, insurers lose this benefit. This could slightly increase their operating costs.

• Higher Operational Costs

Because insurers can no longer claim ITC, some companies might adjust their pricing models or streamline expenses. While premiums for customers have decreased, insurers will need to strike a balance between affordability and profitability.

• Growth in Small Insurance Plans

On the positive side, the lower upfront cost for customers will likely boost demand for smaller, affordable policies. This can help insurers tap into new customer segments and expand their market share.

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FAQs on GST on Life Insurance Premium

1. What is the Goods and Services Tax ( GST) ?

The Goods and Services Tax, or GST, is a unified indirect tax system in India that came into effect on July 1, 2017. The primary purpose of GST is to replace various indirect taxes, including excise duty, service tax, and VAT, on the supply of goods and services. 

Since the implementation of GST, there has been greater uniformity and harmonisation within the tax structure across states, leading to economic integration. 

2. What are the Benefits of GST?

Since its implementation in 2017, GST has successfully brought indirect taxation under a single umbrella. Not only that, GST has eliminated the inevitable cascading effect (tax on tax) of taxes.  

Furthermore, the integration of a robust IT system has made taxation more efficient and hassle-free, enabling taxpayers to remain tax compliant. 

3. What is the current rate of GST levied on insurance premiums?

According to the latest GST reforms proposed in 2025, the GST Group of Ministers (GoM) have proposed full GST exemption on health and life insurance premiums. Earlier, the GST rate levied on such products was 18%, meaning that if someone purchased a life insurance premium of ₹200, they had to pay ₹218. GST payment enabled insurers to claim an input tax credit. 

Now, with the new reform, since policyholders will not be paying any GST, some experts believe that it will impact the pre-tax premium amount as well, owing to the inadmissibility of Input Tax Credit to the insurance companies. 

Note: If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under chapter VI-A (like Section 80C, 80D, 80CCC, etc) of the Income Tax Act, 1961. If assessee opted for New tax regime, then only few deductions under Chapter VI-A (such as 80JJAA, 80CCD (2), 80CCH (2)) of the Income Tax Act, 1961 are available.

4. Does GST apply to all life insurance policies?

Yes, from September 22, 2025 (subject to issuance of Rate Notification) , GST on all individual life insurance and health insurance policies has been reduced from 18% to 0%. This includes term, endowment, ULIPs, pension, and child insurance plans.

5. When is the zero GST applicable?

The zero GST reform will take effect from September 22, 2025, as proposed by the 56th meeting of the GST Council, chaired by the Finance Minister^##.

6. Are group insurance policies included in this reform?

According to current updates, a 0% GST applies to all individual life insurance and health policies. Group insurance policies may continue to be taxed unless specified otherwise by the government.

7. How much will I save on my premium?

You will save the GST portion of your premium. For example, if your premium was ₹10,000 + ₹1,800 GST, you will now only pay ₹10,000, saving ₹1,800 annually. Higher premiums mean even larger savings.

8. Will this affect my claim process?

No. The claim process remains unchanged. The reform only affects how premiums are taxed, not how benefits or claims are processed.

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