How will policyholders benefit from the GST exemption on life insurance?

In a major change for insurance buyers, individual life and health insurance policies will soon become cheaper. The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, has announced that these policies will be exempt from GST starting 22 September. The move is aimed at making insurance more affordable while encouraging wider coverage.

What has changed in the GST structure?

India is shifting to a broader two-rate GST system, with slabs of 5 percent and 18 percent . As part of this restructuring, the GST on life and health insurance has been removed.

Until now, an 18 percent GST was levied on premiums. For example, a base premium of ₹20,000 was increased to ₹23,600 after tax. From 22 September, the same premium will remain at ₹20,000, with no GST added.

Why is this exemption important?

Officials believe this exemption will encourage more people to purchase life insurance or expand their coverage. It is also expected to make health insurance more affordable for ordinary citizens.

In the financial year 2023–24, the Centre and states collected ₹8,262.94 crore as GST on health insurance premiums. In addition, ₹1,484.36 crore was collected on health reinsurance premiums, according to figures as per reports.

Has this been recommended before?

A Group of Ministers had earlier recommended that both life and health insurance be freed from GST. Telangana minister Mallu Bhatti Vikramarka explained that such a move would mean a revenue loss of about ₹9,700 crore.

He also cautioned that “the benefits of GST reduction should go to the policyholders and not the insurance companies,” adding that the GST Council must design a mechanism to ensure this happens.

What does this mean for policyholders?

For those paying premiums, this decision translates directly into lower costs. With the GST exemption, individuals will not only save money but may also be encouraged to opt for larger insurance coverage.

For the government, however, it means a significant cut in tax collections, raising questions about how to balance affordability with revenue.