The Goods and Services Tax (GST) Council on Wednesday announced that life and health insurance premiums will no longer attract GST, shifting them from the earlier 18 per cent slab to the NIL bracket. The reform, approved at the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman, will come into effect from 22 September 2025.
Sitharaman, addressing a press briefing after the meeting, said, “We’ll make sure that companies pass on the benefit to the people who are taking their insurance.” Revenue Secretary Arvind Shrivastava further assured that insurance companies have already committed to transferring the benefit to customers.
What The Exemption Covers
The Ministry of Finance clarified that the exemption applies to all individual life insurance policies — including term, ULIPs, and endowment plans — as well as individual health insurance policies, such as family floater and senior citizen plans. Reinsurance services linked to these policies are also covered under the decision.
Until now, a health policy priced at Rs 10,000 annually ended up costing Rs 11,800 with GST. With the exemption, the same cover will cost exactly Rs 10,000. This is expected to significantly ease affordability, especially for first-time buyers and the middle class who previously found premiums prohibitive.
Calling it a landmark reform, Sarbvir Singh, Joint Group CEO, PB Fintech, said the move sends a strong message that health and life insurance are essential products for the economy. He noted, “By easing the financial burden at a time when healthcare costs are steadily rising, this decision lowers the entry barrier for millions of Indians to secure their wellbeing and financial future. It will be remembered as a progressive reform that brings reassurance to countless families.”
Push Towards ‘Insurance For All’
The decision aligns with the IRDAI’s vision of ‘Insurance for All by 2047’, which aims to ensure every Indian has access to life, health, and property insurance by the country’s 100th year of independence. India’s insurance penetration still lags behind global averages, leaving large sections of the population uninsured.
Pankaj Gupta, MD and CEO, Pramerica Life Insurance, explained that the GST exemption will directly benefit consumers by reducing costs for essential protection products. “It enables customers to either come under the insurance fold for the first time or enhance their coverage within the same budget — a meaningful advantage in a country where underinsurance remains a concern,” he said. Gupta added that unit-linked products (ULIPs) are also expected to become more efficient in the long run.
Relief For Families And First-time Buyers
For many households, health insurance often felt like an additional burden due to the tax load, leading some to delay or forgo buying a policy altogether. The Council’s decision is expected to help reverse this trend.
Vishal Gupta, CEO, PhonePe Insurance, said the exemption is a “significant win” for lower-income families. “This directly reduces the out-of-pocket cost of purchasing insurance and helps families focus on other essential needs. For many, this tax reduction could be the sole deciding factor in securing their health or their children’s future,” he added.
The move is expected not only to encourage new policy purchases but also to allow existing policyholders to opt for higher coverage within the same budget, strengthening long-term financial security.
Industry And Healthcare Impact
Insurance experts believe the impact will extend beyond affordability to wider adoption and reduced stress on government healthcare facilities.
Manish Kumar Goyal, Managing Director and Chairman, Finkeda, explained, “Currently, many middle- and lower-income families view health insurance as an additional expense due to GST. By removing the tax, more individuals will feel motivated to obtain coverage, ensuring they won’t need to spend huge sums from their pockets during emergencies. In the long run, this will also ease pressure on government hospitals.”
Adding a broader perspective, Ashish Goyal, Co-Founder and Whole-Time Director, Fibe, said the exemption could transform healthcare access in India. “Exempting GST on insurance will not only make coverage more affordable but also encourage greater adoption, particularly among middle-income and vulnerable households. This creates a stronger, more inclusive safety net and ensures healthcare decisions are driven by medical need rather than affordability constraints,” he said.
Concerns Over Input Tax Credit
Ankita Srivastava, General Manager – Growth and Strategy, THIP (The Healthy Indian Project), welcomed the exemption as a progressive step that makes insurance products, especially health coverage, more affordable and accessible. She said the reform could be the deciding factor for many first-time buyers and a catalyst for industry growth, encouraging insurers to reach new customer segments and corporates to expand employee benefits.
However, she flagged a concern around input tax credits. “GST is a tricky calculation because of input and output costs. Without input tax credit benefits, insurers may face higher unrecoverable expenses. Already, some reports suggest premiums could rise by 1 to 4 per cent as companies recalibrate their pricing models. While the intent of this reform is positive, careful implementation will be critical,” Srivastava explained.
As the reform comes into force next month, consumers are expected to see immediate savings on premiums. For the insurance industry, the move could serve as a catalyst to reach untapped markets and deepen penetration in rural and underserved areas. Yet, as Srivastava of THIP cautioned, the absence of input tax credit may complicate implementation and lead to some cost adjustments by insurers. The ultimate impact will depend on how effectively the sector balances affordability for consumers with financial sustainability for companies.
