GST Council scraps 18% tax on life and health insurance, making premiums cheaper from September 22

The 56th GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising finance ministers of all states, on September 3, 2025, decided to exempt the premiums for individual life insurance and health insurance policies, including family floater plans, from goods and services tax (GST).

The exemption will be applicable from September 22, 2025. Currently, the rate applicable to health and life insurance policies is 18%.

“The GST Council’s decision to bring health insurance under the NIL GST bracket is a landmark move that will make healthcare protection more affordable and accessible for millions of Indians. At a time when medical inflation is rising steeply, this step directly benefits citizens and eases the financial burden on families. It is also in complete alignment with the vision of Insurance for All by 2047, enabling more people to secure their health and future. This progressive decision will accelerate insurance penetration and strengthen the nation’s health security,” said Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.

According to a PIB press release, "Exemption of GST on all individual life insurance policies, whether term life, ULIP or endowment policies and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country."

"Exemption of GST on all individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country," the release said.

All individual health insurance, along with reinsurance thereof, is 18% with input tax credit (ITC) exemption, as noted in the press release.

As a result, the policies will become cheaper; however, it will be challenging for insurers to implement this, as it could impact their input tax credit.

Karthick Jonagadla, smallcase Manager and Founder Quants Research, says, "Under GST, insurers can credit input taxes on IT, TPAs, call centres and distribution; if premiums are made exempt, CGST Act 17(2) blocks ITC, turning vendor GST into embedded cost."

Jonagadla further explains, "GST exemption on insurance is limited to ₹118, while health premiums keep increasing every year. He further says, "Current cost stacks anchor the arithmetic: ICICI Lombard’s Q1FY26 combined ratio 102.9%; New India Assurance 116.16% (commission 8.54%, opex 7.86% of NWP); Go Digit 108.6% with expense ratio 38.3%; Star Health 99.6% with expense 30.1%. On pure tax mechanics, removing 18% output GST while losing ITC typically keeps the all-in price below ₹118 unless base rates are lifted for other reasons."

In simple terms, it means that the GST relief on individual health insurance only gives a small saving of about ₹118, but since premiums rise every year, this benefit feels very minor. Insurance companies’ costs are already high, so unless they increase base rates, the GST change alone won’t make a big difference in what people pay.

Hanut Mehta, CEO and Co-founder at BimaPay Finsure, says, "On the insurer side, the absence of input tax credit will increase their operational cost. Over time, some of these costs may flow into base premiums, and as a financing partner, we’ll have to keep adapting to these shifts."

Mehta further says, "This change has another side too. In the short term, the financing ticket size per customer will come down since the tax element is no longer there. But on the positive side, lower entry costs will push more people, especially first-time buyers, towards buying insurance. That’s where we see the real opportunity: a larger customer base and wider adoption of premium financing."

"The reduction in price also makes room for people to consider higher sum insured. With lower overall premiums, customers may opt for greater coverage, which strengthens protection levels and gradually reduces the existing protection gap in the market. This shift could benefit both individuals and the broader insurance ecosystem," adds Mehta.

In short, the GST exemption will reduce immediate costs for individuals, challenge insurers to rework pricing, and push financing companies like ours to innovate for scale. For the ecosystem, it’s a step towards expanding insurance penetration in India.