Life insurance premium GST rate GST Removed on Health and Life Insurance Premiums: Big Relief for Policyholders with Zero Tax

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.

Insurance premium without GST

GST reform in India The Great GST Reset 2025: Simplifying Tax Slabs, Compliance, and India’s Economic Future

The Great GST Reset 2025: Simplifying Tax Slabs, Compliance, and India’s Economic Future

The Great GST Reset: A New Era for India’s Taxation System

Introduction

India’s Goods and Services Tax (GST), launched on 1st July 2017, was hailed as the country’s biggest tax reform since independence. The primary aim was to create “One Nation, One Tax, One Market”, simplifying the indirect tax structure and eliminating the cascading effect of multiple state and central taxes.

However, like every large-scale reform, GST has undergone constant evolution. The government, policymakers, and businesses have all faced challenges in its implementation. From issues of compliance, classification disputes, IT glitches, to rate rationalizations, GST has been a journey of continuous learning.

Now, in 2025, conversations around the “Great GST Reset” are gaining momentum. The government is focusing on simplifying tax slabs, improving compliance, reducing litigation, and making GST more taxpayer-friendly. This reset is not just a reform—it is an opportunity to redesign GST into a globally competitive, growth-driven taxation system.

In this article, we will dive deep into what the “Great GST Reset” means, its challenges, opportunities, and how it could shape India’s future economy.

The Need for a GST Reset

While GST has brought many benefits, including a unified tax system, improved transparency, and better revenue tracking, certain structural flaws remain:

   Complex Tax Slabs

    India currently has multiple GST slabs (0%, 5%, 12%, 18%, and 28%) with several exceptions and cess categories.

    This creates confusion, classification disputes, and frequent litigation.

    Countries with GST/VAT typically operate with fewer slabs, making taxation simpler.

2.      High Compliance Burden

    Small and medium enterprises (SMEs) face heavy compliance requirements, including monthly, quarterly, and annual filings.

    Frequent changes in GST return formats and IT glitches have added to their challenges.

3.      Revenue Imbalance

    States often express concerns about revenue shortfalls and compensation delays.

    The COVID-19 pandemic worsened fiscal stress, increasing dependence on GST revenues.

4.      Litigation and Disputes

   Ambiguities in classification of goods/services (e.g., food items, software, construction) have led to multiple disputes in courts.

    A simpler rate structure and clearer definitions could reduce litigation.

5.      Inverted Duty Structure

    Some industries face higher GST on inputs compared to outputs, leading to accumulation of input tax credit and blocked working capital.

These challenges highlight the urgent need for a comprehensive GST reset not just piecemeal changes.

What is the “Great GST Reset”?

The Great GST Reset refers to the government’s move towards:

·         Simplifying GST slabs: Possibly reducing to 3 main slabs (e.g., 8%, 15%, and 25%) instead of the current 5+ slabs.

·         Easing compliance: Introducing AI-driven return filing, single annual filing for small taxpayers, and real-time reconciliation.

·         Revenue stability for states: Ensuring fair compensation mechanisms and expanding GST coverage.

·         Curbing evasion: Expanding e-invoicing, AI-driven audit trails, and integrating GST data with income tax.

·         Encouraging growth sectors: Rationalizing GST rates for manufacturing, exports, MSMEs, and sunrise industries like EVs, green energy, and digital services.

This reset aims to make GST business-friendly, technology-driven, and globally competitive.

Key Elements of the GST Reset

1. Rationalization of Tax Slabs

·         Moving towards fewer tax slabs to reduce disputes and confusion.

·         Essential goods likely to remain at 0% or 5%, while luxury/sin goods remain at 28% with cess.

·         Middle slabs (12% and 18%) could be merged into one standard rate.

·         This would make GST simpler, predictable, and easier for businesses to follow.

2. Technology-Driven Compliance

·         The GST Network (GSTN) is becoming more robust with real-time invoice matching.

·         E-invoicing for all businesses ensures better compliance and reduces tax evasion.

·         AI tools may soon auto-populate returns, reducing manual errors.

·         Small taxpayers may get quarterly or annual return options, cutting down compliance cost.

3. Focus on MSMEs

·         MSMEs contribute significantly to employment and GDP but struggle with compliance.

·         Under the GST reset, proposals include:

o    Higher exemption threshold for small businesses.

o    Simplified quarterly filings under composition schemes.

o    Easier input tax credit claims.

4. Expanding GST Base

·         Currently, alcohol, petroleum products, and real estate are outside GST.

·         The reset may bring these sectors under GST to widen the tax base and reduce cascading taxes.

·         This would also increase transparency and state revenues.

5. Reducing Litigation

·         The GST Council may issue clearer guidelines and advance rulings.

·    A National Appellate Authority for Advance Rulings (NAAAR) has been proposed to ensure consistency across states.

·         Predictability in tax rulings will reduce disputes.

6. Supporting Growth Sectors

·         Lower GST rates on EVs, renewable energy, healthcare, insurance, and education to promote inclusive growth.

·         Rationalizing taxes for exports, IT services, and startups to make India a global hub.

Benefits of the Great GST Reset

1.      Ease of Doing Business

    Simpler tax slabs and easier compliance will save businesses time and money.

2.      Boost to MSMEs

   Reduced compliance burden and better tax credit flow will encourage MSME growth.

3.      Revenue Stability

   Wider tax base and better compliance tools will ensure steady revenue for both states and the center.

4.      Global Competitiveness

    A simplified GST system will attract foreign investors, improve India’s ranking in the World Bank’s Ease of Doing Business Index, and strengthen the “Make in India” initiative.

5.      Consumer Benefits

    Reduced tax disputes and better clarity will ensure fair pricing and reduced tax burden on common goods.

Challenges in the GST Reset

1.      Political Consensus

    GST is a cooperative federalism model, requiring consensus among states and the center.

  States fear loss of fiscal autonomy if GST rates are drastically restructured.

2.      Revenue Concerns

  Reducing slabs may initially impact revenue collection. Balancing lower tax rates with higher compliance will be critical.

3.      Technology Adoption

 While AI-driven compliance tools are promising, digital literacy and infrastructure gaps in rural areas remain a challenge.

4.      Transition Period

   Businesses may face short-term disruptions during the transition to a new GST structure.

5.      Global and Domestic Pressures

    Global economic slowdown, inflation, and rising fiscal deficits could complicate large-scale reforms.

The Road Ahead

The Great GST Reset will not be a one-time event but a phased reform:

·         Short-term (2025-26): Rationalization of tax slabs, simplified compliance for MSMEs, wider adoption of e-invoicing.

·         Medium-term (2026-27): Bringing petroleum and alcohol under GST, strengthening dispute resolution mechanisms.

·         Long-term (2027 onwards): A fully digital, AI-driven GST ecosystem with fewer slabs, minimal litigation, and integration with global taxation standards.

If implemented effectively, the reset will make GST a true game-changer for India’s economic growth story.

Conclusion

The Goods and Services Tax was a bold reform aimed at unifying India’s complex taxation system. While it has delivered significant benefits, structural challenges remain. The Great GST Reset is India’s opportunity to redesign its indirect tax framework—making it simpler, transparent, and growth-oriented.

With rationalized tax slabs, reduced compliance burden, wider tax coverage, and technology-driven enforcement, GST can become a world-class tax system. It can drive India’s economic transformation, support businesses, ensure revenue stability, and ultimately benefit consumers.

As India moves towards becoming a $5 trillion economy, a well-executed GST reset will be one of the most critical reforms shaping the nation’s future.

FAQs on the Great GST Reset

Q1. What is the Great GST Reset?
The Great GST Reset refers to India’s efforts to simplify GST by reducing tax slabs, easing compliance, expanding the tax base, and making it more taxpayer-friendly.

Q2. Why is GST being reset?
The current GST structure has multiple slabs, high compliance costs, and frequent disputes. Resetting GST aims to make it simpler, predictable, and growth-driven.

Q3. Will GST rates come down after the reset?
The government is considering merging slabs to reduce complexity. While some goods may see lower taxes, others may see minor increases for revenue balance.

Q4. How will MSMEs benefit from the reset?
MSMEs will benefit from simplified returns, higher exemption thresholds, and easier credit flow, reducing compliance costs.

Q5. Will petrol, diesel, and alcohol come under GST?
The government is exploring the possibility of including petroleum and alcohol under GST, but this will require consensus among states.

Q6. How will technology help in the GST reset?
AI-driven tools, e-invoicing, and real-time reconciliation will reduce errors, curb evasion, and make compliance easier.

Q7. When will the GST reset happen?
The reset will be phased out over the next few years, with initial reforms expected between 2025-26 and more comprehensive changes by 2027 onwards. 

GST 2.0 Explained: Everyday Goods Like Shoes, Clothes, and Essentials to Get Cheaper from September 22

GST 2.0: The Reform That Will Make Everyday Clothes and Shoes Cheaper (And What It Means for You) Everyday goods cheaper under GST 2.0

1. What is GST 2.0?

GST 2.0 is India’s sweeping reform of the Goods and Services Tax system, rolled out in September 2025. It replaces the existing four-slab tax structure with a simpler model based on two main rates—5% and 18%, plus a new 40% “sin and luxury” bracket. The aim? Streamline taxation, boost consumption, and rein in inflation.

Timing matters

These changes take effect from September 22, just in time for the Navratri and festive shopping season—an ideal moment for economic stimulus.

 

2. What’s Getting Cheaper—and Why It Matters

Your day-to-day essentials are about to cost less

A wide array of household items—soap, shampoo, toothpaste, kitchenware, and toothbrushes—move from 18% to the low 5% bracket.

Bread, butter, and more hit the zero GST sweet spot

Staples like UHT milk, paneer, chapati, and parathas are now GST-free. That’s food for thought for budgeting families.

Indulgences get a break too

Chocolate, jams, pastries, namkeen, and dry fruits—previously taxed at up to 18%—are now lumped into the 5% bracket. A treat without the tax pinch.

Shoes, clothes, and school essentials come under tax relief

Footwear and apparel priced up to ₹2,500 see a drop to 5% GST (down from 12%). Notebooks, pencils, maps, and other school supplies also enjoy tax relief.

DIY, home, and farming tools also benefit 

Items like fertilizers, drip irrigation tools, solar cookers, pressure cookers, and mixer-grinders—all fall into the 5% bracket, making farming and household routines more affordable.

More affordable healthcare

Critical items—life-saving drugs, surgical gear, oxygen cylinders—are now either tax-exempt or taxed at 5%, offering healthcare cost relief.

3. The Flip Side: What’s Getting Costlier GST tax changes India

Premium apparel takes a hit
Garments and footwear priced above ₹2,500 per item will now attract 18% GST, up from the old 12%.

Industry groups are worried
The Retailers Association of India (RAI) and Clothing Manufacturers Association of India (CMAI) warn this may hit the aspirational middle class, dampen retail demand, and impact traditional handloom and artisan segments.

Luxury and “sin” goods get a steep tax uplift
A new 40% tax slab is introduced for sin and luxury items like premium vehicles, yachts, and certain high-end consumer goods—designed to raise revenue and curb excess spending.

 

4. Economic Impact: Winners and Losers

Consumers win across the board
Lower tax rates on everything from food to clothing to fertility items could slash household bills by up to 1.1% of inflation, giving consumers some much-needed breathing room.

Exporters and artisans receive a boost
Handicrafts, hand‐embroidered goods, and traditional footwear now taxed at 5% bring optimism to cottage industries, especially ahead of festival season.

Auto, electronics, and appliance sectors on the rise 
Price drops in TVs, small cars, cement, and air conditioners are expected to stimulate festive-season demand and spur industrial growth.

But premium and fashion sectors reel
Global labels like Zara, Levi’s, Nike, and H&M may face lower demand as middle-class consumers pull back due to higher GST.

 

5. Voices from the Market

Industry asks for simplicity
RAI advocates for a flat GST rate across categories, to remove confusion and ease the load on retailers.

Not all economists are convinced
Prudent voices like economist Montek Ahluwalia suggest a single 14% rate might be more effective than multiple slabs, emphasizing simplicity and better revenue outcomes.

 

6. Your Spending, Simplified

Here’s a breakdown of what gets cheaper—and what gets costlier:

Category	Price Range	GST Old → New	Consumer Effect
Daily essentials & toiletries	Most price points	18% → 5%	Cheaper household goods
Staple food & bread (milk, paneer, roti)	Household essentials	5% → 0%	Lower grocery bills
Apparel & footwear ≤ ₹2,500	Budget clothing	12% → 5%	More affordable clothing
School & stationery	Books, maps, pencils	12% → 0%	Cheaper education supplies
Healthcare supplies	Lifesaving items	12/18% → 5% or 0%	Reduced medical costs
Premium garments & accessories	> ₹2,500	12% → 18%	Higher costs for branded goods
Luxury/sin items	High-end goods	28% → 40%	Expensive luxury experience

 

7. What You Can Do: Tips & Takeaways GST council meeting updates

• Smart shopping: Stock up on essentials now while they’re cheaper.
• Budget clothes wisely: Choose apparel under ₹2,500 to avoid tax hikes.
• Support local: Handloom and artisan products are now more competitively priced.
• Watch purchases: Postpone luxury buys—tax increases make them more expensive.

 

Final Word

GST 2.0 is a bold move to make everyday goods affordable and spur demand.
By reducing tax on essentials like food, toiletries, school supplies, and affordable apparel, the reforms provide relief to Indian households. Yet the higher tax on premium goods reflects the government's balancing act—promoting simplicity and spending power while protecting fiscal health through new sin and luxury levies.

Ultimately, this reform rewrites pricing dynamics in India—from kirana stores to high-street fashion. As consumers, retailers, and policymakers adjust, the long-term effectiveness of GST 2.0 will prove whether simplification truly meets sustainability.

 

Frequently Asked Questions (FAQs)

Q1: What is GST 2.0?
GST 2.0 is India’s new Goods and Services Tax reform that simplifies the tax structure into fewer slabs, making essentials like food, shoes, and clothes cheaper.

Q2: From when will the new GST rates apply?
The revised GST rates will come into effect from September 22, 2025, just ahead of the festive season.

Q3: Which goods are getting cheaper under GST 2.0?
Everyday goods like soap, toothpaste, shampoo, footwear below ₹2,500, budget clothing, school supplies, and some food items will now be taxed at 5% or 0%.

Q4: Will premium clothing and footwear also get cheaper?
No, clothes and shoes priced above ₹2,500 will actually become costlier as GST rises from 12% to 18%.

Q5: How does GST 2.0 affect household budgets?
Families can expect relief on daily essentials, groceries, and affordable apparel, which will bring down overall monthly expenses.

Q6: Are luxury goods included in GST 2.0 changes?
Yes. Luxury items and “sin goods” like premium cars, tobacco, and yachts now fall under a new 40% GST slab.

Q7: What does this mean for students and parents?
School essentials like books, notebooks, maps, pencils, and uniforms will get cheaper, easing education costs.

 Conclusion

GST 2.0 is a big relief for the common man in India. By cutting taxes on daily essentials, food, affordable clothing, shoes, school supplies, and household products, it puts more money back in the pockets of families. At the same time, it raises taxes on premium and luxury goods, balancing affordability with revenue needs.

This new GST structure will not only boost consumer demand during the festive season but also support local artisans, weavers, and small businesses by making their products more competitive. While high-end brands may feel the pinch, the broader economy and households stand to benefit.

In short, GST 2.0 is set to make life easier for everyday consumers while reshaping India’s retail and economic landscape.