GST On ULIP

Table of Content

1. What is ULIP?

2. GST on ULIP Premium

3. Previous GST Rules on ULIPs

4. New GST Rules/Recent Reforms

5. Tax Benefits of ULIPs

6. How the GST Reform Benefits Consumers

7. Key Takeaways

8. Frequently Asked Questions (FAQs) on GST on ULIP

What is ULIP?

ULIP is a smart financial product that serves a dual purpose, offering life insurance protection while also helping you grow wealth through market-linked investments. When you make a payment of a premium, one portion goes towards ensuring your life cover. The other is invested in equity, debt or balanced funds of your choice.

ULIPs provide you with the flexibility to switch between funds according to your risk appetite level and life goals, making them adaptable to a changing market. ULIPs are tailored for long-term wealth creation, which brings valuable tax benefits. Premiums paid on ULIP qualify for deductions under Section 80C^* of the Income Tax Act, 1961 upto ₹1.5 lakh per financial year. As per Section 10 (10D)^*, the maturity proceeds may be tax-free subject to conditions prescribed.

GST on ULIP Premium

Before diving into its impact, first make sure to understand Goods and Services Tax (GST). The GST is a unified tax, which is levied on the supply of goods and services throughout India. Like many financial options, ULIPs were also brought under the GST net.

Previously, when you paid your ULIP premium, it was not just going towards insurance and investments; a portion of it was subject to GST, particularly on charges such as policy administration, mortality, and fund management. This meant your total premium cost was slightly higher, minimising the net amount invested in your chosen funds.

For policyholders, this created a tangible impact, specifically higher costs, which impacted returns over the long term. Please note that, as per the latest GST reform effective from September 22, 2025, ULIP premiums are now GST-exempt. This exemption makes ULIPs more cost-efficient, which ensures that a greater portion of your premium now directly fuels your investment as well as insurance cover.

Previous GST Rules on ULIPs

Until recently, ULIPs have been under a considerable GST burden. A flat GST rate of 18% was levied on distinct cost components such as fund management costs, premium allocation charges and policy administration costs. While such charges might appear small individually, the tax quickly added up.

For instance, if the charge of annual fund management was ₹1,000, you would end up paying an extra amount of ₹180 as GST. Over time, this reduced the invested amount and slightly made a dent in the total returns over the long term. For many policyholders, such additional costs made ULIPs less enticing than other investment products in the market.

These concerns set the stage for the much-awaited GST reforms, which aimed to ease the investors' burden.

New GST Rules/Recent Reforms

With the new GST reform, ULIP investors finally have some relief. Earlier, ULIP premiums included an extra 18% GST on charges like fund management and insurance costs, which made them more expensive. Now, GST has been removed for individual life insurance policies, including ULIPs, so more of your money goes directly into your investment and insurance cover.

This change directly reduces the cost of holding a ULIP. As no GST is deducted, a bigger portion of your premium is now allocated to investments, improving your returns over the long term. Whether you are a new policyholder entering the market or an existing one paying ongoing premiums, both groups get the benefit.

In simple words, ULIPs have now become more cost-effective, return-friendly and tax-efficient, which makes them an even stronger option for wealth creation and protection.

Comparison of Previous GST Rules vs. New GST Reforms

Tax Benefits of ULIPs

ULIPs have always been popular because they combine insurance, investment and tax savings. With the recent GST exemption on premiums, their tax efficiency has only improved. Let’s break this in a stepwise manner.

Tax-Free Maturity Proceeds under Section 10(10D)

One of the most enticing features of ULIPs is that the maturity proceeds can be thoroughly tax-free as per Section 10(10D), provided specific conditions (like premium not exceeding Rs 2,50,000 & 10% of sum assured) are met. The GST exemption does not change this rule. But it helps indirectly. 

Since more of your premium is invested, the maturity value grows higher, and this larger maturity amount remains tax-free.

Impact of GST Exemption on ULIP Investments

Think of GST as a small “leak” in your premium. Earlier, part of your money went toward taxes instead of investments. With the new reform, that leak is plugged. This means:

• Lower total cost of holding a ULIP
• Higher fund allocation toward investments
• Better long-term returns as well as wealth creation

In short, an exemption gives your money more power to grow.

Examples Illustrating Enhanced Tax Benefits

Let’s keep it simple for you:

• Before GST exemption: You paid premium of ₹1 lakh → ₹18,000 went towards GST → Only ₹82,000 invested → Lower maturity amount.
• Post GST exemption: You pay premium of ₹1 lakh → Entire ₹1 lakh invested → Higher maturity → Full amount still enjoys tax-free status as per Section 10(10D), subject to satisfaction of conditions provided.

So, you are not just saving more tax ibut even building a larger tax-free corpus at maturity.

Why ULIPs are a Tax-Efficient Investment Option

ULIPs tick three essential big boxes: insurance protection, investment growth and tax savings. With the GST exemption now in place, they have become even more cost-effective as well as rewarding.

Whether you are planning for retirement, your child’s higher education or wealth creation, ULIPs come across as one of the most tax-friendly as well as long-term financial planning tools available today.

How the GST Reform Benefits Consumers

The recent GST reform has brought direct relief to ULIP policyholders. With the exemption of GST on premiums, investors no longer need to pay an additional 18% tax that once inflated their costs. This instantly makes ULIPs highly affordable and accessible, particularly for first-time investors who were earlier hesitant owing to high charges.

By eliminating GST, more of your premium now stays invested in funds, which results in the potential for higher long-term returns. This change not only benefits prevailing ULIP holders but also attracts new ones who are looking for a cost-effective way to club insurance with wealth creation.

On a larger scale, the reform is expected to boost demand for life insurance products, encouraging more Indians to secure their future while growing their wealth. For consumers, the message is clear; there has never been a better time to opt for ULIPs as part of a smart financial strategy than today.

Key Takeaways

The current GST reforms have made ULIPs more cost-effective and rewarding. With GST of 18% on premiums now exempted, policyholders can make the most out of lower costs, higher invested amounts and better long-term returns. 

Current and prospective ULIP investors should review their policies to maximise these benefits and consider consulting a financial advisor for personalised guidance. 

The new GST regime has truly made ULIPs a tax-efficient, growth-oriented and accessible investment option.

Frequently Asked Questions (FAQs) on GST on ULIP

1. What is GST on ULIP?

GST is a tax applied to goods and services. In the context of ULIPs, GST was earlier charged on certain components of the premium. These components are fund management charges, policy administration costs and mortality charges, increasing the total plan's cost.

2. Has GST on ULIP been removed?

Yes. Effective from 22nd September 2025 onwards, individual life insurance policies, including ULIPs, have become GST-exempt. This basically means investors no longer require paying the additional tax of 18% on premiums. This reform has made ULIPs more affordable.

3. How does the GST exemption affect my ULIP premiums?

With GST removed, a bigger part of your premium goes into your investment and life cover, which minimises the effective policy cost. This not only makes ULIPs more accessible but also improves potential returns over the long term.

The exemption does not change prevailing tax rules. Premiums paid still qualify for deduction as per Section 80C^* (of up to ₹1.5 lakh). And maturity proceeds are tax-free as per Section 10(10D). But as more of your premium now stay invested, the effective benefit of such a tax benefit increases.

4. Is GST applied to the investment portion of ULIP?

No. Earlier, GST was applied to administrative and insurance-linked charges and not the actual investment portion. With the current exemption, none of the premium components are subject to GST now. This means the full amount contributes to your investment and life cover.