GST on Whole Life Insurance

Table of Contents

1. What is Whole Life Insurance?

2. GST on Whole Life Insurance Explained

3. Who should choose Whole Life Insurance?

4. GST Rate Change: Before vs After

5. Why was GST Removed from Term Insurance Premiums?

6. How Policyholders Benefit from GST Reform?

7. Impact of GST Reform on Insurance Companies

8. Old vs New GST Reform Structure for Whole Life Insurance

9. Steps to Maximise Benefits from the GST Reform

10. Conclusion

11. FAQs on GST Reforms on Term Insurance

What is Whole Life Insurance?

Unlike a term plan that has a fixed tenure, a whole life insurance plan provides financial coverage to the policyholder for the rest of their life. It offers dual benefits - on the one hand, it provides lifelong risk cover, and on the other, it initiates wealth transfer to beneficiaries. Whole life insurance is ideal for individuals seeking permanent protection and estate planning. 

One of the most exciting developments is that the new GST on whole life insurance policies allows policyholders to save thousands annually while protecting their families with this insurance plan.

For example, if you buy a policy worth ₹75 Lakh now, it will cost much less than before, when you were supposed to pay 18% GST on whole life insurance products. According to reports, this is a government initiative that makes insurance coverage accessible and affordable to all.

GST on Whole Life Insurance Explained

Earlier, 18% GST was levied on whole-life insurance premiums, significantly inflating the payable premium of an insurance product. However, from 22nd September 2025, the GST on whole life insurance has been completely removed. It has brought the GST rate to 0%. Now, the policyholders only have to pay the premium price without any extra GST add-ons. 

Let us break it down with a numeric example for better understanding: 

Suppose, before the GST reform, you were paying a whole life insurance premium of ₹18,000. Now, since 18% GST was levied at that time, the actual amount you had to pay was ₹21,240 (₹18,000 + ₹3,240). 

Now, after the effect of the new GST on whole life insurance, you only have to pay ₹18,000 flat without any extra GST payments.  

Isn't it amazing? What makes it even more exciting is that the savings you get are not limited to a one-time premium payment; they apply every year at policy renewal. This matters more for a long-duration product, such as whole life insurance. Besides the GST reform on whole life insurance, policyholders can enjoy the significant compounded effect of annual savings over the course of decades.

Who should choose Whole Life Insurance?

• The GST reform on whole life insurance has made it affordable for first-time buyers who earlier thought whole life insurance plans were expensive and beyond their budget.

• Existing policyholders who now realise that the new GST rate on whole life insurance can help them save on premiums and, over time, allow them to receive a significant compounded effect on their annual savings.

It is important to note that the GST reform is not only about tax reduction, but also about making lifetime protection more financially sustainable for families.

GST Rate Change: Before vs After

Unlike temporary savings, the GST reform on whole life insurance provides policyholders an opportunity to save 18% on every renewal or policy purchase. This affordability encourages both new and existing customers from different financial backgrounds to invest more in such plans. It has increased insurance penetration, supporting the government’s vision of “Insurance for all by 2047”. 

Here is a breakdown of the GST rate change before and after the new reform:

Why was GST removed from Whole Life Premiums?

The reason GST was removed from whole-life premiums is that the Indian government wanted to make lifetime insurance products more accessible to all income groups. Not only that, the reform of GST on whole life insurance aligns perfectly with the national agenda of Insurance for all by the year 2047.  

The Goods and Services Tax (GST) is removed from whole life insurance premiums, ensuring that policy premiums are affordable for middle-income households. This encourages wider adoption. 

Let us go through an example - 

Before GST reform, if the annual premium of a whole life insurance was ₹50,000, with 18% GST, the premium became ₹59,000.  

After GST, the ₹50,000 amount remains the same, and the GST amount of ₹9,000 is saved by the policyholder.  

This change helps families to plan for retirement, children’s education, and estate security at reduced cost. Not only that, the new GST on whole life insurance helps insurance companies scale outreach by lowering entry barriers for customers. This move from the Indian government will boost insurance penetration in many underserved regions in the long run.

How Policyholders Benefit from GST Reform?

1.  Lower Premium Outgo

With 0% GST, the premiums of whole life insurance are reduced by nearly 18% compared to earlier. A premium of ₹20,000 before GST reform became ₹23,600 with the addition of 18% GST. That same premium amount after the reform remains ₹20,000 flat, enabling the policyholders to save ₹3,600 on a single annual premium.

Now, imagine the same happening to all the upcoming premiums, which would continue for at least 20 years. This new GST on whole life insurance will result in savings of ₹ 72,000. That is quite a lot. These savings will help families better balance their household budgets by removing the tax burden from long-term protection.

2. Better Affordability Across Segments

The removal of GST on whole life insurance has made it financially accessible to middle- and lower-income households. Families who earlier avoided such kinds of products due to high costs are now reconsidering this viable option. 

Since this reform is a part of a broader goal of “Insurance for all by 2047”, it drives inclusivity and broader adoption. The affordability improvement is not short-term; it actually expands the reach of lifelong insurance products for diverse income groups.

3. Lifetime Savings Advantage

The savings from GST on whole life insurance apply not only once but across the policy duration. The expectation from such products is that policyholders will experience cumulative financial relief, particularly when renewing their policies year after year. 

The saved amount from the premiums could be reallocated to other essential goals, such as a children’s education plan, medical needs, or retirement planning. The long-term benefits of the new GST reform increase policyholders’ confidence in whole life insurance as a cost-effective way to build wealth and transfer a legacy.

Impact of GST Reform on Insurance Companies

The reduced tax burden on policyholders has increased customer demand for insurance, helping insurance companies expand their customer base. However, the same has triggered certain challenges, such as: 

1. Removal of Input Tax Credit (ITC)

Since GST has been removed on Whole Life Insurance w.e.f 22nd September 2025, insurers cannot claim ITC on expenses such as advertising, administrative costs, and commissions. As a result, this may increase insurers' internal costs due to non-availability of credit on input services used in relation to exempted output supplies (premiums). However, financial experts believe that insurers can manage such scenarios through operational efficiencies. Effects on Profit Margins

The loss of ITC could lead to a minor increase in operational costs. However, the overall impact on profitability is expected to be minimal. Since the premium costs will be lower, this would encourage more people to buy these types of insurance products. So eventually, the increased sales volumes from reduced premiums will offset the ITC-related cost increases. .

2. Increased Demand and Sales Growth

Lower premiums because of 0% GST are expected to increase sales. According to a news report, after 0% GST announcement, there has been a record 2.5x surge in term insurance purchases. It has successfully converted a latent demand into an active interest. This high demand for insurance plans can drive economies of scale and more predictable cash flows.

3. Market Competitiveness

Insurers who quickly adopt and market the 0% GST benefit to gain a competitive advantage. The GST reform could encourage innovation in whole life products and value-added services. However, insurers must be proactive in positioning themselves so that they can differentiate their products in a growing market.

Old vs New GST Reform Structure for Whole Life Insurance

Before the September 2025 GST reform, policyholders had to pay 18% GST on their whole life insurance policies, in addition to premiums. 

So, if a policy premium was ₹40,000 annually, the policyholder had to pay a total of ₹ 47,200 (₹ 40,000 + ₹ 7,200) as premium. Now, with the 0% GST, they only have to pay ₹40,000. This allows them to save ₹7,200 on the premium for one financial year. 

So, the GST reform has led to a lower overall premium outgo. This change not only impacted new purchases but also policy renewals. So even for the existing policyholders, the savings will be consistent over time. 

Thanks to this reform, life insurance policies are now more accessible to people with diverse economic backgrounds. 

Here is a clear distinction between the old and new GST reform:

Steps to Maximise Benefits from the GST Reform

Removal of GST on whole life insurance has made premiums lighter and affordable. The following steps will help in maximising the benefits from the GST reform of 2025:

1. Reassess and Renew Existing Policies

It is important to check your whole life insurance policy renewal date and make a note of it so you do not miss the renewal. The good news is that renewals made after 22nd September 2025 are GST-exempt, meaning you only pay the premium at 0% GST. It will help you save thousands on your whole life insurance premiums. 

Keep in mind that purchasing or renewing whole life insurance early will help you lock in a lower premium for all future payments. So, you can balance it effortlessly with your other responsibilities. If you delay, you could lose immediate savings and coverage.

2. Plan Smart for New Purchases

If you are a new buyer, it is a smart move to purchase your whole life insurance plan now. It will allow you to save a lot on your premiums. Moreover, purchasing early could lead to greater cumulative savings over the policy lifetime. In addition, focus on selecting the accurate sum assured amount and relevant riders that align with your long-term goals to maximise the benefits.

Conclusion

The new GST on whole life insurance has not only impacted policyholders but also the insurers. Furthermore, the affordability of these plans has contributed to growing sales, which is a step forward towards making the government's vision of "Insurance for all by 2047" a reality. However, for policyholders, it is crucial to choose insurers with IRDAI approval, high claim settlement and a solvency ratio to ensure transparency and reliability.

FAQs on GST Reforms on Term Insurance

Q. Is whole life insurance taxable?

The premiums paid towards whole life insurance are eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to ₹1.5 Lakh per financial year. This benefit can be availed only if opted for Old Tax Regime as per the Income Tax Act, 1961. The maturity amount or the death benefit of whole life insurance, however, is tax-free under Section 10(10D) of the Income Tax Act, subject to conditions prescribed. 

Q. What is the new GST rate on whole life insurance?

As of September 2025, the GST on whole life insurance is 0%, meaning such policies are tax-exempt for the individual policy holders, the group policies are still taxable at 18% as per the CGST Act, 2017. Earlier, in similar products, 18% GST was levied. The new GST reform of 2025 has made insurance products more affordable and accessible for individuals hailing from different financial backgrounds.  

Q. How to calculate the total cost of whole life insurance premium with tax in 2025?

The best way to calculate the total cost of a whole life insurance premium with tax in 2025 is by using an online calculator. The calculator contains all necessary variables, such as age, gender, and coverage amount, so as soon as you fill in that information, you will get the total cost hassle-free. 

Since September 2025, there has been no GST levied on life insurance plans; the premium amount you see is the final cost of your whole life insurance plan.  

Q. How much is the GST on whole life insurance for senior citizens in India?

As per the 2025 GST reform, the entire life insurance for senior citizens in India is GST-exempt under the CGST Act, 2017 w.e.f 22nd September 2025.,  Meaning, there will be zero GST levied on such plans. This reform has made life insurance plans more affordable and accessible for all.  

Q. How much can policyholders save annually with the new GST?

The new GST reform in India (2025) has enabled policyholders to save thousands of rupees on annual premiums paid towards life insurance plans. Earlier, premiums were subject to 18% GST, so if a policy premium was ₹30,000, the policyholders had to pay a total of ₹35,400. 

But now, since the new GST reform, premiums have become GST-exempt. So, if a policy premium is ₹30,000, the policyholder is supposed to pay ₹30,000 only, which allows them to save ₹5,400 annually. 

Note: If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under chapter VI-A (like Sections 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 Sections 80JJAA, 80CCD(2), 80CCH(2) of the Income Tax Act, 1961 are available.

Reference Links:

• https://www.sbilife.co.in/en/gst

• https://lifeinsurance.adityabirlacapital.com/articles/life-insurance/role-of-life-insurance-in-estate-planning/

• https://www.hdfclife.com/term-insurance-plans/whole-life-insurance#:~:text=Whole%20life%20insurance%20is%20a,Show%20Less%20...Read%20More

• https://www.hdfclife.com/insurance-knowledge-centre/tax-saving-insurance/gst-and-life-insurance?srsltid=AfmBOooUSA5p_xBIVuU8arR9kG8sWTIMyXlofxWuGQvaDTM-vn5pcFyE