No GST on life and health insurance? Here’s how it will impact you

The Goods and Services Tax (GST) Council is considering a proposal to remove GST on premiums paid for life and health insurance.
This change, if implemented, could bring relief to policyholders and support the insurance sector by lowering the costs of these essential services.
At present, both life and health insurance premiums are taxed at a rate of 18%. However, the Council is exploring ways to reduce this burden, especially for senior citizens and those with lower health coverage.
The proposal suggests that premiums paid for health insurance covering up to Rs 5 lakh for individuals, excluding senior citizens, may be exempted from GST. However, for policies with higher coverage, premiums over Rs 5 lakh would still be taxed at the current 18% rate.
For senior citizens, the proposal offers even greater relief. Regardless of the coverage amount, health insurance premiums paid by senior citizens could be exempted from GST entirely.
The Council is also considering an exemption on GST for life insurance premiums, including term policies and family floater plans. Currently, premiums for these policies are taxed at 18%.
The decision is still being discussed, and a final call will be taken by the GST Council.
An official quoted by PTI said, “GoM members are broadly on board for cutting rates on insurance premiums. A final decision will be taken by the GST Council.”
The exemption is being supported by many members of the Council, who believe that reducing GST on insurance premiums will offer financial relief to the public and encourage more people to invest in life and health insurance.
Exempting health insurance premiums for senior citizens could have a revenue impact of approximately Rs 2,200 crore, while the exemption for term life insurance premiums is estimated to cost around Rs 200 crore. Despite these revenue losses, the Council appears to be leaning toward implementing the exemptions, recognising the benefits they could bring to the public.
“The reduction in 18% GST on insurance services is likely to make an Insurance premium cheaper, hence, more attractive to common people and will lead to broader coverage ensuring medical facilities for everyone,” RC Sankhla, former Chief Commissioner of Customs and GST told India Today Digital.
“It will also lead to more players in the field, leading to healthy competition, ensuring better insurance services,” he added.
Tax expert Sandeep Agrawal suggested that a lower rate of premium would benefit buyers, and help in increasing insurance penetration in India.
“A reduction in GST on insurance products will directly lower the overall cost of insurance premiums for customers. For instance, if GST is reduced from 18% to 12%, the effective premium paid by the policyholder would decrease proportionally. This makes insurance more affordable and accessible, potentially increasing the penetration of insurance in the market,” Sandeep Agrawal, Director and Founder of Teamlease Regtech told India Today Digital.
“Lower premiums could lead to increased market expansion, higher renewal rates, and incentivise existing policyholders to opt for enhanced coverage or add-ons, ultimately boosting financial protection. Additionally, this change aligns with government initiatives aimed at improving insurance penetration in India, where coverage levels are still low compared to global standards,” Agrawal added.
A 13-member Group of Ministers (GoM) was formed to examine the issue. Bihar Deputy Chief Minister Samrat Chaudhary, who heads the GoM, said, “Every GoM member wants to give relief to people. Special focus will be on senior citizens. We will submit a report to the Council. A final decision will be taken by the Council.”
The GoM includes ministers from various states, including Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu, and Telangana. This group is expected to submit its final report to the Council by the end of October.