In a landmark announcement, the GST Council has decided to exempt individual life and health insurance policies from Goods and Services Tax (GST). This effectively brings the tax rate on such premiums down from 18% to zero, making insurance more affordable for millions of households across India.

The reform was confirmed by Finance Minister Nirmala Sitharaman in a late-night press briefing, where she highlighted that the decision was taken with full consensus across states. “Families and individuals should not be burdened when they are trying to secure their future through insurance. This step ensures that the benefit reaches policyholders directly,” she stated, while also emphasizing that insurers would be required to pass on the cost savings to customers.

GST Exemption on Life and Health Insurance: A Relief for Families

Insurance premiums in India have long carried a heavy GST component, pushing up costs for families already grappling with rising healthcare expenses. With the new exemption:

• Premiums will become more affordable → Families can access life and health cover without the extra 18% tax load.
• Demand is likely to rise → More households may now opt for insurance, boosting financial inclusion.
• Wider healthcare access → Affordable premiums will allow greater penetration of health insurance across urban and rural India.

The Bigger Picture: GST Simplification

This exemption is part of a larger overhaul of India’s GST framework. The council has moved to simplify the system from four slabs (5%, 12%, 18%, 28%) to just two slabs (5% and 18%), while retaining a special 40% rate for high-end items like luxury cars, tobacco, and cigarettes.

For healthcare, the GST cuts go beyond insurance. Essential items such as thermometers, medical oxygen, diagnostic kits, reagents, glucometers, test strips, and corrective spectacles will now attract only 5% GST, further reducing the burden on patients and hospitals.

The Numbers at Stake

In FY24, the government collected nearly ₹16,400 crore in GST revenue from the insurance sector alone:

• ₹8,135 crore from life insurance
• ₹8,263 crore from health insurance
• ₹2,045 crore from reinsurance on life and health policies
  

By eliminating GST on premiums, the government may see a revenue shortfall of around USD 1.2–1.4 billion annually. However, the expectation is that improved affordability and higher penetration will expand the insurance base in the long run, balancing the revenue equation.

The Impact on Insurers

While policyholders will gain immediate relief, insurance companies may experience short-term pressure on margins. Analysts predict a 3–6% hit to combined ratios in the retail health segment, primarily because repricing of renewals could take up to 12–18 months.

Nevertheless, with broader adoption of insurance policies, insurers may benefit from higher volumes, offsetting the initial strain.

GST Exemption – Conclusion

The removal of GST from life and health insurance premiums marks a decisive step toward making financial protection more accessible for Indian households. It reduces costs for consumers, supports healthcare inclusion, and simplifies the tax structure—aligning with India’s larger economic reform agenda.

While the government may face a temporary dip in revenue, the long-term benefits of greater insurance penetration and healthier financial security for citizens far outweigh the shortfall.

This reform is not just a tax cut—it is a strong signal that India is prioritising the well-being of its people, ensuring that healthcare and life cover are within everyone’s reach. Get in touch with Pitchers Global today!