Life & Health Insurance Policies Now GST-Free: Will Customers Really Benefit?

New Delhi: In a major move during the 56th GST Council meeting, it was announced that all personal life insurance and health insurance policies will no longer attract GST. Previously, a GST of 18% was applicable on these policies, but the tax has now been reduced to zero, effective from 22 September 2025. The key question remains: will this tax relief fully benefit customers, or will insurance companies absorb some of the advantage?

Which Insurance Policies Are Now GST-Free?

The GST exemption applies to nearly all personal insurance plans, including:

Life Insurance Policies:

• Term plans

• Endowment policies

• Unit-Linked Insurance Plans (ULIPs)

• Reinsurance policies

Health Insurance Policies:

• Personal health plans

• Senior citizen health plans

• Family floater plans

With this move, policyholders no longer need to pay the extra 18% GST while paying premiums. For instance, a monthly premium that previously included ₹1,800 GST will now only require the base amount, reducing the financial burden on customers.

Will Customers Actually Save Money?

While the GST reduction is beneficial on paper, experts caution that input tax credit (ITC) adjustments might affect the actual savings.

Insurance companies previously claimed ITC for expenses such as agent commissions, marketing, and office rentals. With GST now removed on premiums, companies no longer receive ITC for these costs. According to Ashwin Ghai, former LIC director, companies might pass part of these costs to customers, potentially offsetting some of the tax relief.

Thus, while premiums will technically be GST-free, the actual benefit to policyholders may vary depending on company pricing strategies.

Additional Healthcare Relief

The government has also cut GST on most medicines and medical services, reducing the rate to 5%. Complete exemption was avoided to prevent increased costs on raw materials for manufacturers, which could have inadvertently raised prices.

Medical devices, including surgical, dental, and veterinary equipment, will also attract only 5% GST. According to government officials, this step aims to reduce healthcare costs and provide relief to patients, though some complexities remain due to the inverted duty structure (higher tax on raw materials than on finished goods). Companies will still be eligible for ITC refunds, helping them manage costs effectively.

What Policyholders Should Know

1. Premium Savings: Policyholders no longer pay 18% GST on life and health policies, effectively reducing the monthly or annual outflow.

2. Varied Company Response: Some insurers may adjust premiums to account for lost ITC, so the net saving may differ across companies.

3. Effective Date: All changes apply from 22 September 2025. Customers purchasing policies after this date should see GST-free premiums reflected in their bills.

4. Long-Term Impact: The GST cut is part of a broader effort to ease financial burdens on middle-class families while encouraging insurance coverage.

Bottom Line: The GST exemption on life and health insurance is a welcome relief for policyholders, but the actual benefit may vary based on how insurance companies adjust their pricing. Customers should check their premium invoices carefully and compare plans to ensure they get the full advantage of the tax cut.