GST On LIC Policy in 2025

What Is GST?

GST stands for Goods and Services Tax. It is levied on the consumption of a product or the availing of a service. GST was introduced in 2017 as a uniform indirect taxation system to replace all indirect taxes such as service tax, excise duty, etc. Since insurance is a service, the introduction of GST impacted the premiums charged for life insurance policies, leading to an increase in the price of the policies. For instance, the service tax of 15% that was previously levied on the premiums payable for term life insurance policies increased to 18% following GST laws.

GST Rate on LIC Premiums- At a Glance

Major GST Reform in 2025: Exemption of GST on LIC Policy

The Indian government exempted the Goods and Services Tax from all individual life insurance premiums, including LIC policies. This reform effectively reduced the GST rate on these policies from their previous rates (up to 18%) to 0%, starting September 22, 2025. GST on LIC premium exemption applies to all individual life insurance policies, including term plans, endowment plans, pension plans, and ULIPs. The following table illustrates the previous and current GST rates on the premiums charged across different LIC policies. 

* GST at a rate of 18% was levied on 25% of the premium charged in the first year. 

** GST at a rate of 18% was levied on 10% of the single premium charged for annuity plans.

*** GST at a rate of 18% was levied on 12.5% of the premiums charged in subsequent years.

Removing GST Rate on LIC Premiums- How Policyholders Will Benefit?

1. Reduced Premium

   The removal of GST on LIC premiums means LIC policyholders no longer pay the GST component on their premiums; they only pay the base premium amounts to keep their policy active. For example, if your life insurance premium was ₹10,000 plus 18% GST (₹1,800), you now only pay ₹10,000 without any additional tax.

2. More Affordable Insurance

   GST on LIC policy removal is expected to make LIC policies more affordable and encourage higher insurance penetration across India.

3. More Focus on Enhanced Protection

   With zero GST on LIC premiums, the policyholders can now use the extra amount to add riders for enhanced protection and coverage.

What Remains Unchanged After Removal of GST on LIC Policy?

• No Input Tax Credit for Policyholders: Individual policyholders still cannot claim Input Tax Credit on premiums paid.

• Tax Benefits Under Income Tax Act: LIC policyholders continue to enjoy tax deductions under Section 80C for premiums paid and exemptions on maturity proceeds under Section 10(10D).

• Corporate Policies: The exemption of GST on LIC premiums applies only to individual policies, not group or corporate insurance plans.

LIC Resources

FAQs