GST Impact on Life Insurance Premiums

What is GST on Life Insurance Premiums?

In India, GST was introduced on July1,2017, replacing multiple indirect taxes like service tax, VAT, and others. Life insurance premiums, like many other services, were subject to GST. The standard life insurance premium GST Rate was 18% for most life insurance products. However, as per the GST Council announcement, GST on life insurance premiums has been reduced to zero, effective September 22, 2025. This means policyholders will no longer pay GST on life insurance premiums or health insurance premiums

GST Impact on Different Types of Life Insurance Policies

GST is applied differently depending on the structure of the insurance policy. Let’s break down how GST impacts various life insurance plans.

1. Term Life Insurance

   • Definition: Term insurance is pure life insurance that provides coverage for a specific period, and the sum assured is paid to the nominee in case of the policyholder's death during the policy term.

   • Old GST Impact: GST is levied at 18% on the entire premium for term life insurance policies. Since term plans are pure risk covers, the entire premium amount is taxable.

   • New GST Impact: No GST on term insurance premium, the entire premium is GST-exempt from September 22, 2025

2. Endowment Plans

   • Definition: Endowment plans combine life cover and savings. They provide a lump sum payout upon death or at the policy's maturity.

   • Old GST Impact: For endowment plans, GST is charged at 18%, but only on the risk portion of the premium (the part that covers life insurance), not on the savings component. This is because endowment policies have a dual structure — part of the premium goes towards life cover, and the rest is invested or saved.

   • New GST Impact: GST on life insurance policy (endowment) is zero, meaning no tax even on the risk portion.

3.  Unit-Linked Insurance Plans (ULIPs)

   • Definition: ULIPs are life insurance plans that combine life coverage with investment in stocks or bonds. A portion of your premium goes towards insurance, and the other part is invested in market-linked funds.

   • Old GST Impact: Similar to endowment plans, GST of 18% is charged only on the portion of the premium that goes toward life cover. The part of the premium that is invested is not subject to GST. However, other charges in a ULIP, such as fund management charges, allocation charges, and policy administration charges, also attract GST at 18%.

   •  New GST Impact: No GST on ULIP premiums or associated charges, zero GST on life insurance, including ULIPs.

4. Health Riders and Add-ons

   • Definition: Life insurance riders are additional benefits you can add to your basic life insurance policy, like critical illness cover, accidental death benefit, or disability cover.

   • Old GST Impact: GST on riders like hospicare or critical illness riders is levied at 18% on the rider premium. Since these are considered pure risk covers, the entire premium paid for the rider is taxable at the standard GST rate.

   • New GST Impact: GST on life insurance premium (health riders) is zero, no GST on rider premiums.

Breakdown of GST Charges on Life Insurance

Here’s a simplified breakdown of how GST applies to life insurance premiums:

Note: All GST on life insurance premium in India and related variants now carry zero GST, offering substantial relief to policyholders.

What is The Overall Impact of GST on Your Premiums?

Earlier, GST at 18% made life insurance premiums more expensive across most policy types. With GST reduced to zero, policyholders only pay the base premium; no additional tax is added.

Why Understanding GST on Life Insurance Matters?

Knowing how the GST rate on insurance premium affects your costs helps you budget better and choose the right policy type. For instance:

• Term insurance now becomes an even more economical option, no GST, pure cover, with affordable costs.

• For ULIPs or endowment plans, the price advantage may be smaller due to ITC-related adjustments, though still beneficial in gross terms.

• Riders now come GST-free, improving affordability of add-ons like critical illness covers.

What are the GST Implications on Life Insurance for NRI?

NRIs purchasing life insurance in India were previously subject to the same 18% GST, with exemptions if premiums were paid via NRE accounts in foreign currency. With the new update:

• GST on life insurance policy (NRI) and premium is now zero regardless of payment method, effective September 22, 2025.

• Thus, NRI-specific waivers or invoices are no longer necessary for GST relief, though tax benefits under Indian law remain unchanged.

New Updates: GST Exemption (2025 GST Council Decision)

• Announcement Date: September 3, 2025, at the 56th GST Council meeting led by Finance Minister Nirmala Sitharaman

• Effective From: September 22, 2025, from the start of Navratri.

• Scope: All individual life insurance and health insurance premiums, including term plans, ULIPs, endowment plans, family floater, senior citizen plans, and their reinsurance, are now GST-free

Wrapping it Up!

With GST on life insurance premiums now reduced to zero, policies have become affordable across all types, term plans, ULIPs, endowment policies, and riders. While insurers may adjust base premiums slightly, removing 18% GST still offers clear savings. With existing tax benefits, life insurance remains a smart, cost-effective way to secure your financial future.

Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.

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