Reform GST Rates on Term Insurance

Table of Contents

1. What is Term Insurance?

2. Types of Term Insurance

3. What is GST on Term Insurance Premiums?

4. GST Rates Before and After Reform for Term Insurance

5. Why was GST Removed from Term Insurance Premiums?

6. Possible Impact of GST Reforms on Policyholders

7. Possible Impact on Insurers (Insurance Companies)

8. Current GST vs Upcoming GST Reform on Term Insurance Premiums

9. Next Steps to Maximise Your Benefits

10. FAQs on GST Reforms on Term Insurance

What is Term Insurance?

Term insurance is a straightforward and affordable life insurance policy designed to provide financial support to your family in case of the untimely demise of the policyholder. It functions solely as a protection plan with no savings or investment component. 

For instance, a ₹1 crore term insurance cover, which could cost less than your daily expenses, is now even more affordable due to the new 0% term insurance GST rate, making it a highly accessible safety net for families.

Types of Term Insurance

There are several types of term insurance policies available in India, each catering to different needs. Importantly, the term insurance GST rate on all individual term insurance types is now 0%. Still, group term insurance policies continue to attract the 18% GST under the reforms of GST rates on term insurance.

• Level Term Insurance

This is the most common type of term plan. The coverage amount (sum assured) stays fixed throughout the policy term, ensuring predictable protection for your family. With 0% GST, premiums are now even lower, making it a cost-effective option for straightforward, long-term financial security.

• Increasing Term Insurance

In this plan, coverage increases annually to keep pace with inflation and rising living costs. Premiums may remain the same or increase slightly, offering growing protection without frequent policy changes. It’s ideal if you expect higher financial responsibilities in the future.

• Decreasing Term Insurance

Here, the coverage amount gradually decreases over time, mainly aligning with a loan or mortgage balance. This type of plan is beneficial for individuals seeking protection while repaying debts. With 0% GST, it is an affordable way to safeguard your family against liabilities.

• Convertible Term Insurance

This plan allows you to convert your term insurance into another type of policy, such as a whole life or endowment plan, in the future. The best part is you can do this without undergoing a new medical test, ensuring flexibility as your financial needs evolve.

• Return of Premium Term Insurance

In this plan, if you survive the policy term, the premiums you paid are returned to you. This feature combines protection with savings, making it an attractive option for cautious planners. With 0% GST, these premiums are now even more affordable, improving overall value for money.

What is GST on Term Insurance Premiums?

GST on term insurance premiums is an indirect tax charged on the premium paid for term insurance coverage. Until 22 September 2025, individual term insurance plans were taxed at 18%, meaning a premium of ₹10,000 attracted an additional ₹1,800 GST, taking the total to ₹11,800.

From 22 September, the GST on individual term insurance premiums has been reduced to 0%, making term plans more affordable and encouraging more people to opt for pure protection insurance. This reform is part of the government’s efforts to improve financial security.

• Before September 22, 2025: 18% GST on individual term insurance (₹10,000 premium + ₹1,800 GST).

• On or After September 22, 2025: 0% GST on individual term insurance (₹10,000 only).

• Group term insurance: Still attracts 18% GST.

This change under the new GST on term insurance is expected to boost sales and widen insurance coverage.

GST Rates Before and After Reform for Term Insurance

The GST reforms on term insurance, effective from September 22, 2025, bring significant relief to policyholders. The table below shows the comparison:

This reform enables individual term insurance policies to be significantly more affordable, while maintaining group policies unchanged. The Economic Times highlights that this move aims to promote more exhaustive insurance coverage among individuals under the reforms of GST rates on term insurance.

Why was GST Removed from Term Insurance Premiums?

The government removed the 18% GST on individual term insurance premiums (effective from 22 September 2025) for several key reasons. They are as follows:

• Boost Insurance Penetration: India’s insurance adoption is considered relatively low compared to global standards. Lower premium costs are intended to encourage more people to buy term insurance. 

• Make Insurance More Affordable: Removing GST lowers the cost of premiums, helping families from different income levels to access life cover without the extra tax burden. 

• Reduce Financial Burden Due to Rising Expenses: As household costs rise (due to inflation, etc.), removing additional taxes helps alleviate pressure on policyholders. 

• Promote Financial Inclusion and Social Security: By simplifying costs and reducing taxes on life protection, the reform supports broader financial safety nets for households. 

Let us take an example to understand better.

Suppose you have an individual term insurance policy with an annual premium of ₹30,000:

• Before 22 September 2025, GST @ 18% would mean you pay an additional ₹5,400, making the total cost ₹35,400.

After the reform, with GST reduced to 0%, you pay only the base premium of ₹30,000, saving ₹5,400 each year. Over a 20-year term, that adds up to ₹1,08,000 in savings under the GST reforms on term insurance.

Possible Impact of GST Reforms on Policyholders

• Lower Premiums

With the removal of GST on individual term insurance, premiums are now around 18% cheaper. This directly reduces the cost of coverage for families. For instance, a ₹25,000 annual premium that previously cost ₹29,500 (₹25,000 + ₹4,500 GST) now costs exactly ₹25,000, saving ₹4,500 annually and easing the financial burden on families under the new GST on term insurance.

• More Affordability

The tax waiver makes pure protection insurance accessible to a broader section of society, especially middle- and lower-income groups. By lowering the cost barrier, this reform supports the government’s ‘Insurance for All by 2047’ mission, encouraging more individuals to secure financial protection for their families without additional tax burdens.

• Benefits of Existing Customers

Existing policyholders also benefit, as renewal premiums on individual term insurance plans are now lower. This means customers will experience reduced strain on annual, half-yearly, or monthly payments, helping them maintain long-term coverage without stretching their household budgets. Over time, the savings can be substantial.

Possible Impact on Insurers (Insurance Companies)

• Loss of Input Tax Credit (ITC)

With GST removed from individual term insurance premiums, insurers can no longer claim Input Tax Credit (ITC) on the GST they pay for their operational expenses, such as advertising, commissions, or services. This slightly increases their internal costs, as the tax paid on these inputs is now an unrecoverable expense.

• Margins and Profitability

Although the loss of ITC raises costs marginally, industry experts believe the overall effect on insurers’ margins and profitability will be minimal. The removal of GST makes premiums more affordable, which can attract more customers. This higher demand can help offset the slight increase in operational costs and keep profits largely stable under the reforms, particularly with the rates on term insurance.

• Growth in Sales

Cheaper premiums, due to zero GST, are expected to boost demand for term insurance significantly. More individuals are likely to purchase policies, widening insurers’ customer base. This growth in sales volume can help companies recover any additional costs from the loss of ITC and even strengthen their long-term revenue streams.

Current GST vs Upcoming GST Reform on Term Insurance Premiums

The GST reform, effective 22 September 2025, removes the 18% tax from individual term insurance premiums, making life cover significantly more affordable. While group term insurance policies will continue to attract 18% GST, this change offers direct savings for individuals under the GST reforms on term insurance.

Below is a clear comparison of the old and new tax structure:

This side-by-side view highlights how the reform enhances affordability for individuals while maintaining the group policy GST unchanged under the new GST on term insurance.

Next Steps to Maximise Your Benefits

With GST on individual insurance premiums reduced to nil from 22 September 2025, you can take some simple steps to maximise your savings and ensure seamless coverage.

• Check and Update Your Current Policies

Check the renewal dates of your current health and life insurance policies. Renewing on or after 22 September allows you to benefit from the GST reduction. However, if your renewal falls before this date, don’t delay; timely renewal is essential to maintain continuous protection and avoid policy lapses.

• Time Your New Policy Purchases

If you’re planning to buy a new policy, consider waiting until 22 September to take advantage of the GST waiver. This can lead to significant savings on your premium. The upcoming GST reforms are poised to be a game-changer for the insurance sector, lowering premiums, enhancing affordability, and making insurance a more integral part of long-term financial planning.

FAQs on GST Reforms on Term Insurance

1. Is GST applicable to term insurance?

From 22 September 2025, individual term insurance premiums attract 0% GST, so you pay only the base premium. However, group term insurance policies still incur an 18% GST, which means that only individual policyholders enjoy the tax relief under the new GST on term insurance.

2. Does this change apply to both individual and group term insurance?

No. The 0% GST rate applies only to individual term insurance plans. Group term insurance policies, such as those offered by employers or associations, will continue to attract 18% GST on the premium even after the reform takes effect.

3. Can I buy a term plan now and still get the 0% GST benefit?

To enjoy the 0% GST benefit, your policy premium or renewal must be charged on or after 22 September 2025. Policies purchased or renewed before this date will still have 18% GST applied to the premium at the time of payment.

4. What was the GST rate on term insurance before the reform?

Before the reform, both individual and group term insurance premiums were taxed at 18% GST from July 2017. This meant policyholders paid an additional ₹1,800 GST on a ₹10,000 premium, increasing the overall cost of maintaining life cover.

5. Why did the government remove GST on term insurance?

The government removed GST on individual term insurance to make life cover more affordable and boost insurance penetration in India. Lowering the tax burden encourages more people to purchase pure protection plans, thereby strengthening financial security for families across various income levels.

Sources:

https://irdai.gov.in/web/guest/document-detail?documentId=1624671

https://bfsi.economictimes.indiatimes.com/articles/indias-life-insurance-industry-sets-phased-targets-for-universal-coverage-by-2047/122207731#:~:text=Insurance%20Awareness%20Committee%20%2D%20Life%20The,the%20time%20India%20marks%20100

https://www.livemint.com/insurance/news/gst-rate-cut-on-life-insurance-ulip-endowment-when-will-you-policyholders-get-lower-prices-september-22-reissuance-india-11757081621554.html

https://www.newsonair.gov.in/gst-council-cuts-rates-on-insurance-medicines-daily-essentials-major-relief-for-common-man-farmers-and-industries/