Any move to scrap or slash the Goods and Services Tax (GST) on insurance policies will improve affordability and hopefully increase penetration, thus improving the financial security for millions in India. Currently, most life and non-life insurance policies fall under the higher GST bracket of 18%, undesirable for a basic necessity. 

This has long been a sticking point for all policyholders, especially for first-time buyers and pensioners. While the tax revision is reportedly still in the discussion stage, experts believe that if not a complete removal, GST rates even in the 5% range could result in sufficient savings for premium payers.

"Reclassifying these products to the 5% tier or waiving GST altogether will smooth the path to affordable cover and raise insurance take-up rates across India," says Rajiv Gupta, president at PB Fintech.

Insurance is not a luxury but an essential tool for financial safety, according to experts. Eliminating or moving to a lower GST slab of 5% or 12% would make it affordable. This will enable a larger segment of people, especially those from the middle class, to afford the premiums without compromising on other essential expenses. "A reduced tax slab on insurance plans will also support government schemes such as Ayushman Bharat. So, the expectation is that insurance, especially health and life, should be placed in the 5-12% GST bracket to ease the burden on customers," says Naval Goel, founder and CEO of PolicyX.com.

Term insurance

Currently, a term insurance policy is taxed at 18%. Even as the industry awaits clarity, Probus CEO  Trupti Balasubramaniam says, "For other categories such as endowment or investment-linked policies, which are positioned as savings-cum-investment vehicles, the current GST rate of 4.5% can remain the same. Such a differentiated approach would balance affordability for essential coverage while maintaining revenue considerations for products with investment components.”

Health insurance

Health insurance penetration remains low in India, with nearly a third of the country’s population (around 400 million) lacking any form of health coverage. Unaffordability remains a key reason. "India, which surpasses South Asian peers with a medical inflation rate of 14%, currently has a GST of 18% on health insurance. The removal of GST will also help the government focus on improving penetration, as it will shift much of the healthcare coverage burden to the private sector. This would also allow market forces to drive better outcomes," says Anup Rau, MD and CEO of Generali Central Insurance Company Ltd.

PolicyX.com’s Goel explains the tax burden on a senior citizen’s premium with an example. "If the premium is ₹50,000 per year, with 18% GST, the tax is ₹9,000, making the total premium ₹59,000. If GST is reduced to 12%, the tax drops to ₹6,000, and the final total premium will be ₹56,000. This allows policyholders to save ₹3,000 in just a year. Furthermore, if the GST is reduced to 5%, the tax drops to ₹ 2,500, and the final total premium will be ₹52,500. This allows policyholders to save ₹7,500 in just a year. For senior citizens, who already pay higher premiums due to age and often live on fixed incomes, this saving is meaningful.”

Furthermore, if the government completely removes GST from insurance products, policyholders can save ₹9,000 in just one year. This way, a lower GST rate will provide seniors with some financial relief and help them continue their health coverage without added stress.