In a major relief for households, the GST Council has scrapped the 18% Goods and Services Tax on health and life insurance premiums, effective 22 September 2025. The decision is expected to reduce policy costs, making insurance more affordable for millions of Indians. While the move is positive for consumers, experts believe the actual savings may be slightly lower than the headline figure.

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Full News / Details Quick Analysis / What This Means

Full News / Details

The Goods and Services Tax (GST) on individual health and life insurance premiums has been a longstanding concern for policyholders. For years, families buying policies worth ₹10,000 annually had to pay an additional ₹1,800 as GST, raising the total cost to ₹11,800. The removal of this 18% tax is set to lower the financial burden on households directly.

The GST Council’s decision will apply to new as well as renewed policies from 22 September 2025. This means anyone purchasing or renewing a policy after this date will no longer need to pay GST. The government’s step comes at a time when insurance penetration in India remains significantly lower than global standards.

Why premiums may not drop by the full 18%

While the exemption clearly removes the tax component, experts caution that customers may not enjoy the full 18% reduction. This is because insurers will no longer be eligible to claim Input Tax Credit (ITC) on the taxes they pay on various services, such as distribution and administrative expenses.

With the ITC benefit gone, insurers may face higher operational costs. To manage this, companies are expected to make minor upward adjustments to base premiums, which could reduce the extent of savings for policyholders. Industry estimates suggest that the effective premium reduction may range between 10 and 15%, instead of the full 18%.

For instance, on a policy with a premium of ₹20,000, the GST previously added ₹3,600, making the total ₹23,600. Post-exemption, even if insurers adjust base premiums upward slightly, customers could still save anywhere from ₹2,000 to ₹3,000.

Market reaction and industry response

The announcement had an immediate impact on the stock market. Shares of major insurance companies such as LIC, HDFC Life, ICICI Prudential Life Insurance, and SBI Life witnessed gains after the news was made public. Investors viewed the exemption as a reform that could drive greater demand for insurance products, thereby expanding the customer base.

Insurance companies, while welcoming the move, have sought further clarity from the government on how ITC treatment will be handled going forward. Without ITC, insurers may need to revisit their pricing models. Several insurers are currently in discussions with industry bodies to work out a balanced approach that ensures both affordability for customers and sustainable margins for companies.

Impact on policyholders

For consumers, the exemption means immediate relief on policy renewals and new purchases. Families paying high premiums for health insurance, especially senior citizen plans, will feel the difference more significantly. Similarly, term insurance buyers will find the cost of coverage lower than before.

Experts recommend that customers renewing policies after 22 September 2025 will directly benefit from the change. However, those with renewal dates before this cut-off may still need to pay GST until their next cycle.

Quick Analysis / What This Means

The removal of GST on health and life insurance premiums is a consumer-friendly reform aimed at improving affordability and expanding financial protection across India.

Short-term impact: Customers will see a noticeable reduction in premiums, though not the entire 18% because of ITC loss.
Medium-term impact: Insurers may reprice their products slightly higher, but the net saving for policyholders will remain significant.
Long-term impact: The reform supports the government’s broader vision of “Insurance for All by 2047,” improving penetration in one of the world’s most underinsured large economies.

Overall, this change strikes a balance between consumer affordability and industry sustainability. For policyholders, it is a direct financial benefit. For insurers, it opens up the possibility of attracting more customers and expanding the market in the coming years.

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