The latest GST reform has brought welcome relief to insurance buyers—but not everything may be
as straightforward. Here's a plain-English guide to help you understand what’s changing, when it
applies, who's affected, and whether premiums will truly become
cheaper.
Why the
Government Reduced GST on Insurance
India’s insurance penetration is still low—just around 3.7% of the population is covered under
life or health insurance. One barrier for middle-income families has been the added 18% GST on
premiums. Cutting or removing GST on such policies was therefore
part of the GST Council’s aim to make insurance more affordable and achieve its "Insurance for
All by 2047" vision.
From What Date
Will the GST Benefit Apply?
- 1. Effective Date: From September 22, 2025, new and renewal premiums
for individual life and health insurance will be eligible for full GST exemption.
- 2. Premiums paid before that date remain subject to the old 18% GST—no
refunds or adjustments apply.
Will Insurance
Premiums Actually Get Cheaper?
It depends—yes, but the benefit may be blurred.
What’s positive:
- 1. Consumers will stop paying the 18% GST portion on premiums due
after September 22.
What’s not so simple:
- 1. Insurers are losing the benefit of input tax credit (ITC) on their
own operational costs (like admin, marketing, commissions).
- 2. Without ITC, companies may need to slightly raise the base premium
to recoup costs. Brokerages estimate this could mean 1–4% increase in base premiums.
Example:
If the base premium is ₹20,000:
- 1. Old structure: ₹20,000 + ₹3,600 (GST) = ₹23,600
- 2. New model: ₹20,000 + ₹900 (loss of ITC) = ₹20,900
- 3. Net saving for you: ₹2,700—not the full ₹3,600
Who Is
Affected—and Who Isn’t?
| Type of Policy |
GST Status After Sept 22 |
| Individual Life &
Health Insurance |
GST exempt (0%) — premiums
due/renewed after Sept 22 |
| Group Insurance
|
Still attracts 18% GST |
| ULIPs & Admin Charges
|
GST applicable unless specifically
exempted |
| Micro-insurance &
govt health schemes
|
Continue at existing lower GST
rates (5–12%) |
Important
Scenarios to Know
- 1. Renewals due before Sept 22 but paid after: If the invoice was
already issued, GST still applies—even if you pay later during the grace period.
- 2. Advance/full payments made before Sept 22: No refunds or
retroactive GST adjustments. The tax paid remains valid.
Mixed
Reactions from Insurers
- 1. Industry players welcome the GST exemption for better
affordability and potential market growth.
- 2. However, they’ve raised concerns about how ‘exempt’ vs ‘0%
rate’ classifications affect ITC eligibility—and have asked for clarifications from
IRDAI, CBIC, and the GST Council.
Key
Takeaways for Policyholders
- 1. Premiums due after September 22, 2025 will not include 18% GST
for individual life or health insurance.
- 2. No refunds will be issued for premiums paid earlier—these are
governed by the old rules.
- 3. Savings are real, but may be slightly moderated if insurers
adjust premiums due to lost ITC.
- 4. Group policies, ULIPs, micro-insurance schemes continue to
attract GST unless specified otherwise.
- 5. Always check the invoice date, not just payment date—GST
treatment depends on invoice issuance.
Bottom Line
The GST exemption is a meaningful step toward reducing
insurance costs—but the actual benefit to you depends on many moving parts, including how
insurers recalibrate premiums. Stay informed, check your invoice dates, and don’t
assume GST-free means automatically cheaper across the board.
Would you like me to help draft a checklist or FAQ template
for your readers to compare old vs new premiums clearly? I’d be happy to help.
Contact us today for a free consultation.
Mobile: 9358072247
Gmail: trakintax@gmail.com
