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How GST Changes Are Reshaping Life Insurance Plans in India - DeshGujarat

DeshGujarat

Life insurance premiums in India previously included the Goods and Services Tax (GST), which increased the total cost of purchasing and maintaining coverage. The higher premium outgo discouraged many individuals from buying or renewing policies. On September 22, 2025, the 56th GST Council meeting revised it and introduced 0% GST on life insurance.

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Read on to understand what exactly has changed for GST on life insurance plans and how it affects you.

Overview of the GST 2.0 Revision on Life Insurance

GST was introduced on July 1, 2017, bringing multiple indirect taxes under one umbrella. It replaced multiple indirect taxes, including VAT, service tax, and excise duty. Goods and services were categorized into five tax slabs: 0%, 5%, 12%, 18%, and 28%. Until September 21, 2025, life insurance products, including term plans, endowment plans, and Unit-Linked Insurance Plans (ULIPs), were subject to different GST rates depending on the type of plan.

However, under GST 2.0, starting on September 22, 2025, all premiums for individual life insurance plans are now exempt from GST. This reform reduces the tax rate to 0%, which lowers premium costs for millions of policyholders.

The table below highlights the exact change in GST rates across different types of policies:

Type of Life Insurance Plan GST Applicable Before September 22, 2025 GST Applicable After September 22, 2025
Term Life Insurance 18% 0%
ULIPs 18% 0%
Endowment Plans (First-year premium) 4.5% 0%
Endowment Plans (Renewal premium) 2.5% 0%
Single Premium Annuity Policy 1.8% 0%

What GST Changes Mean for Your Savings

The move to 0% GST on life insurance reduces your premium payment.

For example, if your annual premium for a life insurance plan is ₹20,000, the earlier GST of 18% added ₹3,600 to your cost, making your total payable ₹23,600.

Under the revised GST rule:

  1. 1. Premium: ₹20,000
  2. 2. GST: 0%
  3. 3. Total Payable: ₹20,000
  4. 4. Yearly savings: ₹3,600

Over 20 years, this results in total savings of ₹72,000.

Which Policies Are Eligible for the 0% GST Benefit?

The 0% GST on life insurance applies only to the following:

  1. 1. Individual term insurance plans
  2. 2. Individual endowment plans
  3. 3. Individual ULIPs
  4. 4. Family floater plans
  5. 5. Individual health insurance policies that include travel or personal accident cover, when sold as a single combined plan
  6. 6. Reinsurance related to these individual policies

So, the GST exemption is limited to retail, personally purchased life insurance plans and does not extend to institutional or employer-based coverage. It means the exemption does not apply to:

  1. 1. Group insurance policies, including group credit life and group term policies
  2. 2. Employer-sponsored group term life insurance
  3. 3.Corporate life insurance policies

Why This Change Matters for Policyholders

The 0% GST on life insurance has the following benefits for the policyholders:

  1. 1. Lower Premium Outgo

You now pay only the actual premium amount, without the additional 18% previously added. As life insurance becomes more affordable, it allows families to make informed decisions about buying or renewing a policy without hesitation.

  1. 2. Opportunity to Increase Coverage

As premiums become more affordable, individuals can now select a higher sum assured without placing a new strain on their income. Moreover, a person who already holds a term plan may now find it feasible to purchase another plan, such as a child plan or retirement-oriented savings plan.

  1. 3. Improved Savings Allocation

You can now divert the money saved from the removal of GST toward long-term goals, such as emergency funds, retirement funds, or investments in children’s education.

How It Impacts Insurers

The GST exemption benefits policyholders, including first-time buyers, middle-income families, and seniors, immediately.  But insurers face specific operational financial adjustments.

Previously, insurers could claim Input Tax Credit (ITC) on taxable input services, such as commissions and marketing expenses. With the output supply (policy premiums) now exempt from GST, insurers are no longer eligible to claim ITC. They must also reverse any prior ITC claimed for these supplies. It creates higher net operational costs for insurers.

Now, insurers are passing the full benefit to customers by removing GST without adjusting the base premium. However, over the medium term, they may revise base premiums upward to recover the increased operational cost. The timing and scale of adjustments may differ across product categories. For instance:

  1. 1. Competitive retail markets (e.g., health and term insurance) may see slower price revisions.
  2. 2. Long-term life insurance products may see more noticeable premium recalibration.

Conclusion

The shift to 0% GST on life insurance will make coverage more affordable and accessible for individuals and families who previously found premiums restrictive. Policyholders now benefit through lower costs, flexibility to enhance coverage, and easier long-term financial planning. Beyond immediate savings, this reform supports the national goal of ‘Insurance for All by 2047.’ It will promote insurance penetration and financial protection across households.

If you are evaluating a life insurance plan, this is a financially favorable period for purchasing or renewing coverage.