GST removed on health and life insurance premiums: How will
policyholders benefit from zero tax?
GST removed on health insurance premiums
The government's decision to remove GST on health insurance and life insurance premiums has created a great enthusiasm among policyholders, insurance companies, and financial planners.
Previously, policyholders had to
pay 18% GST on their premiums, which often made health and life insurance
expensive for the middle class. With the removal of this tax burden, insurance
is expected to become more affordable and accessible for millions of Indians.
In this comprehensive blog, we will explore:
• What does the removal of GST mean for policyholders?
• How does it affect premium costs?
• Benefits for individuals and families.
• Industry responses and long-term impacts.
• Frequently Asked Questions (FAQ)
Understanding GST on insurance premium
When the Goods and Services Tax (GST) was introduced in July
2017, an 18% tax was levied on insurance premiums. This meant that if your
health insurance premium was ₹20,000 per year, you would actually pay ₹23,600
(including ₹3,600 GST).
Similarly, for life insurance policies, GST was applicable
on the premium portions, making long-term savings and security products more
expensive.
This tax has discouraged many middle-income families from
purchasing adequate coverage. Insurance companies and industry experts have
been demanding the removal of GST for years, especially on health insurance, as
it is an essential financial safety net.
Game-changing announcement
In 2025, the government finally removed GST on health and life insurance premiums, providing significant relief to millions of policyholders. This decision is being viewed as a reform focused on public interest and welfare, aimed at:
• Making insurance more affordable.
• Encouraging more citizens to get insured.
• Reducing external spending on healthcare.
• Promoting financial inclusion.
This step is expected to significantly increase the
penetration of insurance in India, which is currently lower than the global
average.
How will policyholders benefit?
Let's analyze the benefits of zero GST for various
categories of stakeholders.
Low premium cost
By removing GST, premiums automatically become cheaper. For
example:
• Health
insurance premium (before): ₹25,000 + 18% GST = ₹29,500
• Health
insurance premium (after): ₹25,000 (no extra tax)
That’s a direct saving of ₹4,500 annually.
a) More Affordable Life Insurance
Life insurance plans—especially term insurance and endowment
policies—become lighter on money. Families will no longer hesitate due to the
high GST charge.
b) Better Coverage for the Same Price
Instead of paying tax, customers can now increase their sum
insured with the saved amount. For example, if you save ₹4,500 from GST
removal, you could use it to increase your health cover by an additional ₹2–3
lakhs.
c) Encouragement for First-Time Buyers
Many people avoided buying insurance due to high costs. Now,
with zero GST, first-time buyers may feel encouraged to ensure protection for
their families.
2.Impact on
Different Insurance Segments
Health Insurance
• Policies
become 18% cheaper instantly.
• Families,
senior citizens, and young professionals are likely to purchase more policies.
• Out-of-pocket
medical expenses will reduce, giving people more financial security.
Life Insurance
• Premium-heavy
policies like ULIPs, endowment, and whole life plans will see significant cost
reductions.
•Term
insurance—already affordable—will now become the cheapest form of life cover in
decades.
Group Insurance Plans
• Employers
providing group medical coverage will save money.
• Companies
may extend higher coverage to employees at the same budget.
3. Industry Reactions
Insurance companies, policyholders, and financial advisors
have welcomed the move wholeheartedly.
Insurance companies expect an increase in new customer acquisition.
• Policyholders
feel that this makes financial planning easier.
• Experts believe this will increase the penetration of
insurance, which is currently about 4% for life insurance and 1% for health
insurance in India.
3. Economic and Social Impact
a) Boost to
Insurance Penetration
Affordable premiums will encourage more people to get
insured, helping India bridge the gap with global averages.
b) Reduced
Healthcare Burden
With more people insured, the government’s burden on public
healthcare spending may reduce.
c) Middle-Class
Relief
The middle class, which often struggles with rising medical
costs, will benefit the most from lower insurance expenses.
d) Growth
for Insurance Companies
Lower taxes mean higher demand, creating growth
opportunities for insurers and generating more jobs in the sector.
4.Real-Life Example of Savings
Case Study – A Family of Four
• Annual
health insurance premium: ₹40,000
• Earlier
(with GST): ₹47,200
• Now
(zero GST): ₹40,000
• Saving:
₹7,200 per year
In a decade, this family saves ₹72,000, which can be
invested in mutual funds, PPF, or even high health coverage.
5. Challenges and Considerations
While the GST removal is a big relief, a few challenges
remain:
Insurance companies may slightly increase base premiums in
the long run to balance costs.
• Awareness of insurance is still low in rural India.
• Policyholders should carefully compare policies instead of
focusing only on lower costs.
6.Long-Term Outlook (Affordable health insurance India 2025)
The removal of GST is a game-changer for the Indian
insurance sector. Over the next few years, we may see:
• High insurance penetration, especially in tier-2 and
tier-3 cities.
• More product innovation, as insurers will have a larger
customer base.
• Improved access to healthcare, as more people will be
financially prepared.
• Economic stability for families, reducing medical debt and
financial stress.
Conclusion (Impact of zero GST on health insurance)
The removal of GST on health and life insurance premiums is
a landmark decision that directly benefits millions of policyholders across
India. It makes insurance more affordable, accessible, and attractive for the
middle class and first-time buyers.
For policyholders, it means lower premiums, better coverage,
and higher savings. For insurers, it promises greater demand and market
expansion. And for the country, it paves the way toward financial inclusion and
stronger social security.
In short, this reform is not just about tax savings—it’s
about creating a healthier, more financially secure India.
Frequently Asked Questions (FAQ)
Q1. What was the GST rate on insurance premiums earlier?
It was 18% on health and life insurance premiums.
Q2. Does GST removal apply to all types of insurance?
Yes, it applies to health insurance, term insurance, ULIPs,
and other life insurance products.
Q3. How much will I save after GST removal?
You will save 18% of your current premium amount. For
example, a ₹30,000 premium earlier cost ₹35,400 with GST, but now it’s only
₹30,000.
Q4. Will insurers increase premiums after GST removal?
There is a possibility of slight base premium hikes in the
future, but the overall cost will still be lower than when GST was applicable.
Q5. How will this decision impact insurance penetration in
India?
It is expected to increase significantly, as lower costs
make insurance affordable for a wider population.
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