No GST on life & health insurance

A major relief has been announced for millions of Indians as the Goods and Services Tax (GST) on health and life insurance products has been cut from 18% to zero. The move, cleared by the GST Council in a unanimous decision, is aimed at making insurance more affordable and accessible to the common man.

Big GST Relief for Policyholders

Finance Minister Nirmala Sitharaman, in a late-night press conference on Wednesday, confirmed that all individual health and life insurance products including term life, ULIPs, endowment policies, family floaters, and senior citizen policies will now be exempt from GST. Reinsurance in both health and life segments will also be exempted.

“This was so much questioned last year. People asked why we want to tax insurance premiums. After detailed study and consultations, we are ensuring families and individuals benefit from this exemption,” Sitharaman said, adding that insurers will be expected to pass on the benefit to policyholders.

Why the Move Matters

Earlier, insurance buyers had to pay an additional 18% GST on top of their premium, making policies significantly costlier. Now, with zero tax, the same premium amount directly enhances coverage instead of going to taxes. Analysts estimate this could reduce premiums by up to 15% in health insurance and bring more families under the insurance safety net.

GST Structure Simplified

The exemption comes as part of a larger revamp of the GST structure. The four existing slabs of 5%, 12%, 18%, and 28% will now be streamlined to just two – 5% and 18%. A special 40% slab will remain for high-end items like luxury cars, tobacco, and cigarettes.

Prime Minister Narendra Modi had hinted at this rationalisation during his Independence Day speech. The move is also being seen in the backdrop of India’s exports facing high tariffs in the US, signalling a broader strategy to support domestic affordability and global competitiveness.

Revenue Implications

The government collected over ₹16,398 crore from GST on health and life insurance in FY24, including ₹8,135 crore from life, ₹8,263 crore from health, and another ₹2,045 crore from reinsurance. By exempting these products, the exchequer could face an annual revenue shortfall of USD 1.2–1.4 billion.

However, the government is betting that increased insurance penetration and long-term financial inclusion will outweigh short-term revenue loss.

Impact on Industry and Consumers

While customers will benefit from lower premiums, insurance companies may see a 3–6% hit on their combined ratios in the retail health segment, as renewals may take 12–18 months to reprice fully. Still, the sector is expected to benefit from higher demand and expanded customer base.

In addition, several essential healthcare items – including thermometers, medical-grade oxygen, diagnostic kits, reagents, glucometers, and corrective spectacles – have also seen GST rates cut to just 5%, further easing healthcare costs for families.

A Step Towards Wider Coverage

The GST exemption is being hailed as a landmark move to strengthen India’s insurance ecosystem. By making premiums more affordable, the government hopes to bridge the protection gap and push more households towards securing health and life coverage.

As FM Sitharaman concluded, the ultimate goal is simple: “to make insurance affordable for the common man and increase the insurance coverage in the country.”