The Indian government has announced a full exemption of the Goods and Services Tax (GST) on individual health and life insurance premiums, effective 22 September 2025. The decision, part of the new “GST 2.0” overhaul, is expected to significantly lower policy costs and provide direct relief to millions of policyholders.
GST Cut: A Key Component of GST 2.0
The 56th meeting of the GST Council approved the removal of the 18 percent GST currently applied to individual insurance premiums. The exemption will take effect nationwide as part of a broader tax reform that simplifies slabs into two standard rates, 5 percent and 18 percent, alongside a zero percent rate for essentials such as food grains, education, and now insurance.
Finance Minister Nirmala Sitharaman stated that the reform was designed to “benefit citizens directly, not insurance companies,” adding that the government would ensure the savings reach policyholders.
Expected Impact on Policyholders
Industry estimates suggest policyholders could see premium costs fall by 12 to 15 percent. The gross benefit of an 18 percent GST waiver may be partially offset by higher base premiums, as insurers lose the ability to claim input tax credit (ITC) on their operational expenses.
According to an analysis by HSBC, the net impact could translate into premium reductions of about 15 percent, depending on insurer pricing strategies. The Insurance Regulatory and Development Authority of India (IRDAI) has confirmed that insurers are expected to pass on the benefit to consumers.
Insurer Adjustments and ITC Loss
Insurers previously relied on ITC claims to offset their tax liabilities. With GST exemption, this mechanism will no longer apply. Analysts at Moneycontrol have noted that insurers may respond by raising base premium rates by 3 to 5 percent over the next year to absorb these costs.
A report from the Financial Express projected that, even after accounting for such adjustments, most policyholders will still enjoy meaningful net savings.
Industry and Expert Reactions
Public sector insurers have already committed to transferring the full tax benefit to policyholders, while private insurers are expected to follow suit.
Nilesh Sathe, former member of the Insurance Regulatory and Development Authority, said the reform “will boost insurance penetration and ease the burden on households, particularly for health coverage in a post-pandemic economy.”
Economic analysts argue that lower insurance costs could expand coverage among India’s underinsured population, aligning with government efforts to deepen financial inclusion.
What Policyholders Should Know
The exemption will apply only to policies purchased or renewed on or after 22 September 2025. Current policies, or those renewed earlier, will not qualify for refunds on GST already paid.
Some policyholders may delay their renewals to take advantage of the exemption. Financial advisers, however, caution against leaving families uninsured during the interim.
Broader Economic Context
The GST exemption on insurance is part of a larger tax restructuring aimed at boosting domestic demand and simplifying compliance. According to the Financial Times, the overhaul represents one of the most significant tax reforms since GST was first introduced in 2017.
Analysts suggest that while the short-term impact will be a reduction in government tax revenue, the longer-term benefits could include stronger insurance penetration, higher savings, and increased consumer confidence.
Conclusion
The removal of GST on insurance premiums marks a major policy shift with direct benefits for policyholders. While adjustments in base premiums may modestly offset the savings, the reform is widely expected to make health and life insurance more affordable, expand coverage, and strengthen financial security for Indian households.
