GST on Life Insurance: A Comprehensive Guide

What is GST?

The Goods and Services Tax (GST) is a single tax system India introduced on July 1, 2017, to replace the many different state and central taxes that existed before. Instead of paying multiple taxes at each step of buying or selling goods and services, GST combines them.

It is charged at every stage of the supply chain, but only on the value added, because businesses can claim credit for the tax they already paid. India uses a dual model, CGST and SGST for sales within a state, IGST for sales between states, and UTGST for union territories. This system makes taxes simpler, fairer, and more transparent while reducing the overall burden on consumers.

GST on Life Insurance

Under GST, life insurance premiums are subject to tax due to the services rendered by insurance companies, including premium collection, claims processing, and risk coverage provision. The GST rate on life insurance premiums is determined by the Insurance Regulatory and Development Authority of India (IRDAI).

How Does the GST Differ with the Type of Life Insurance?

From September 22, 2025, all individual life insurance policies, including term insurance , ULIPs, endowment plans, and whole life policies, are exempt from GST. This is a significant change from the earlier 18% GST that applied to most life insurance premiums and charges. Group insurance, however, continues to attract GST.

Old vs New GST on Life Insurance Premium Rates

This exemption lowers policy costs significantly, making life insurance more affordable and boosting insurance penetration across India.

Implications of GST on Life Insurance Premiums (with 2025 updates)

• Zero GST from Sept 22, 2025
  The earlier 18% GST on individual life insurance (term, ULIP, endowment) and health insurance is removed to 0%. Now policyholders don’t pay GST on premiums.

• Applies to new and renewal policies
  Exemption covers both fresh policies and renewals billed on or after 22nd September 2025.

• Covers only individual policies
  Zero GST applies to individual life and health insurance (including family floaters, senior citizen plans). Group insurance provided by employers remains taxable at 18%.

• Impact on insurers
  Insurance companies lose Input Tax Credit (ITC) benefits they previously claimed on expenses like commissions, admin costs, and marketing. This raises their operational costs.

• Policyholder advantage
  The move makes insurance more affordable, especially for middle-class households and first-time buyers.

Benefits of GST on Life Insurance Premiums

Full GST Exemption on Life Insurance after 2025 Update

As per the Union Cabinet's decision in September 2025, GST on individual life and health insurance premiums has been reduced to 0%. This is a major relief for policyholders, directly lowering the cost of buying and maintaining insurance policies.

This move is expected to:

• Make life insurance more affordable for middle-class and salaried individuals.

• Encourage higher insurance penetration across India.

• Reduce the financial burden on families, especially for long-term savings and protection plans.

Tax Deductions for Policyholders

Even though GST has now been waived off, the income tax benefits under the Income Tax Act, 1961 continue:

• Section 80C: Policyholders can claim deductions of up to ₹1.5 lakh per year on premiums paid for life insurance. This limit includes other eligible investments like PPF, EPF, ELSS, and NSC.

• Section 10(10D): The maturity proceeds, death benefits, or surrender value from life insurance policies remain tax-free, subject to prescribed conditions. If these are not met, maturity amounts may be taxable.

This means life insurance continues to serve as both a protection tool and a tax-saving instrument.

Enhanced Transparency and Compliance

Before the 2025 reforms, GST had already simplified the indirect tax structure by replacing multiple levies with a single framework. With GST removed on individual life and health insurance, the process has become even more transparent and customer-friendly. Policyholders pay only the premium, without worrying about added tax.

 Boost to Insurance Penetration

The GST exemption is also expected to widen the insurance customer base. More people can now purchase life insurance without feeling burdened by extra costs, helping the government's broader vision of Insurance for All by 2047.

Wrapping Up!

Now that you understand the impact of GST on life insurance plans, it’s important to recognize that there is more to these plans than just pricing differences. For a reliable and beneficial life insurance plan for your family, consider term plans from Policybazaar. This term insurance plan offers comprehensive coverage, various payout options, and additional covers to increase your protection.

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

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