New Delhi: A big change is being discussed that could make life and health insurance more affordable for millions of people in India. The government may soon remove the 18 percent Goods and Services Tax (GST) on insurance premiums.
This step could help reduce the cost of insurance and encourage more people to buy policies, helping improve insurance coverage across the country.
What Is the Current GST on Insurance?
Right now, whenever you buy or renew a life or health insurance policy, you have to pay 18 percent GST on the premium.
For example:
If your insurance premium is Rs 20,000, you currently pay an extra Rs 3,600 as GST.
This means your total cost becomes Rs 23,600.
This tax applies to both individual and family policies. For some one-time premium plans, the tax rate may vary slightly, but for most regular policies, it stays high.
What’s in the New Proposal?
The new proposal suggests removing the entire GST on life and health insurance premiums. If approved:
You would pay only the premium amount, without any added tax.
This could reduce insurance costs by up to 15 percent.
The idea has come from a Group of Ministers (GoM), and the central government is fully supporting the move as a way to promote financial inclusion. Some states, however, are concerned about losing revenue.
Currently, GST on insurance earns the government Rs 8,262 crore each year, with another Rs 1,500 crore from health reinsurance. Removing GST may cause a revenue loss of Rs 10,000 crore.
Will Insurance Premiums Actually Go Down?
In theory, yes. But there's a small twist.
Right now, insurance companies get input tax credit (ITC) on the GST they pay on services like tech, staff, and support. If GST is removed, they lose this credit, which may increase their costs.
To cover this, some insurers might raise the base premium, which could reduce the benefit of GST removal.
Experts say it would be better to make insurance zero-rated, so customers pay no tax, but companies still get their input credits.
When Will the Decision Be Made?
The final call will be taken in the next GST Council meeting in mid-September 2025.
If approved, the change could be implemented before Diwali, making it a festive gift for policyholders.
What Should You Do Now?
If you're planning to buy or renew insurance, you may want to wait for a few weeks.
If GST is removed, your premium could become much cheaper. But be sure to check if insurers pass the benefit on to you.
This move could be one of India’s most customer-friendly tax reforms, but the real impact depends on how it's implemented.
