In a significant relief for policyholders, the Goods and Services Tax (GST) Council on Wednesday approved a complete exemption of GST on health and life insurance premiums. The decision, announced by Union Finance Minister Nirmala Sitharaman after chairing the 56th Council meeting, will take effect from September 22, 2025, coinciding with the start of Navratri.
Currently, insurance premiums attract 18% GST. With the exemption, premiums are expected to become more affordable. HSBC Securities and Capital Markets (India) estimates health insurance premiums could fall by about 15%, although the actual benefit passed on will depend on insurers’ expense ratios.
The move, however, may cost the exchequer $1.2–1.4 billion annually in lost revenue. Insurers could also face a 3–6% impact on combined ratios in the retail health segment, since repricing of renewals may take 12–18 months.
Explaining the decision, Sitharaman said, “Exemption of GST on all individual life insurance policies — whether term, ULIP, or endowment — and reinsurance thereof, will make insurance more affordable and help expand coverage. Similarly, exemption on all individual health insurance policies, including family floater and senior citizen plans, is aimed at boosting accessibility and affordability.”
The Council also approved a new dual-slab GST structure of 5% and 18%, replacing the earlier 5%, 12%, 18%, and 28% system. A special 40% slab will apply to sin and luxury goods such as tobacco, aerated beverages, and premium automobiles.
Alongside insurance exemptions, the Council announced rate cuts on several essential items including groceries, medicines, cement, and small cars, in an effort to ease household budgets and spur consumption. Officials said the revamp was designed to simplify the indirect tax regime while safeguarding revenues through higher taxes on luxury consumption.
