GST Impact on Insurance Premiums Explained

The Goods and Services Tax, commonly known as the GST, is applicable to a variety of commodities and services in India. Insurance is considered a financial service, and that’s why, GST on insurance is levied on all types of Life Insurance Plans. However, depending on the plan, the GST rate differs, so let us take a look at various GST charges for different types of insurance premiums.

What is GST?

GST stands for Goods and Services Tax, a new tax system that paved the way for a comprehensive overhaul of India's indirect tax structure. Enacted in 2017, the Goods and Services Tax Act has since undergone a series of revisions, and the Central Board of Indirect Taxes and Customs (CBIC) is the regulatory authority that oversees all modifications and revisions to this tax. With this tax reform, GST replaced a number of indirect taxes charged on various commodities and services, including GST on insurance premium.

How Does GST Affect Insurance Policies?

As we have already mentioned, the GST rates on various insurance policies have undergone a major reform. Earlier, different policies carried different GST rates — 18% for term and health insurance, 4.5%/2.25% for endowment, 1.8% for annuity, and 18% for ULIPs.

This meant higher costs for policyholders, especially when paying the GST on Term insurance premium or the GST for health insurance, both of which directly increased the total payable amount. From 22 September 2025, all individual life insurance and health insurance policies are exempt from tax under the revised insurance GST rate structure (nil rate), reducing policyholders’ premiums by nearly 18%.

However, group insurance policies (such as employer-provided health or life cover) still attract GST at 18%.

Check out how different insurance policies are affected by GST:

• Term Insurance Plans are the most cost-effective type of life insurance. Earlier, GST on Term insurance premiums was 18%, but from 22 September 2025, it has been reduced to 0%, making term cover more affordable.
• Endowment Plans previously carried tiered GST rates of 4.5% on first-year premiums and 2.25% on subsequent premiums. Now, they are fully exempt, with a flat 0% GST across all years.
• Single Premium Annuity Plans earlier attracted 1.8% GST on the lump sum amount. Under the new rules, these plans are now charged 0% GST, reducing upfront costs for retirees.
• ULIPs were previously taxed at 18% on charges such as allocation, mortality, and fund management fees. Since the reform, ULIPs are also exempt and attract 0% GST, improving affordability and returns.
• There are specific government-run health schemes that were already exempt, but now all individual health insurance plans (including family floater and senior citizen policies) are also at 0% GST. Group health insurance provided by employers, however, continues to draw an 18% tax.

There are specific government-run health schemes where the health insurance GST rate does not apply.

What are the Types of Life Insurance Plans?

Here is a detailed analysis of GST on life insurance and how they differ depending on the type of life insurance.

1. Unit Linked Insurance Plans (ULIPs)

   Earlier, ULIPs attracted 18% GST on charges such as allocation, mortality, fund management, and administration fees. From 22 September 2025, ULIPs fall under the 0% GST slab, making them significantly more affordable for investors. This change reduces recurring policy costs and increases the net returns from the investment component of the plan. Policyholders can now allocate more of their funds into market-linked products without worrying about tax outflows, since the GST rate on insurance premium for ULIPs is now nil. Overall, the exemption positions ULIPs as a competitive alternative to mutual funds and other long-term wealth-building instruments, especially when viewed in comparison with reforms such as the reduced Term insurance GST rate.

2. Endowment Plans

   Previously, endowment plans were taxed at 4.5% in the first year and 2.25% from the second year onwards. Under the revised rules, these policies are now fully GST-exempt, which simplifies cost structures for policyholders. Families seeking guaranteed savings and maturity benefits will find these plans more attractive than before. The removal of tiered GST structures brings greater transparency and predictability in premium payments. Endowment products, especially LIC policies, where policyholders often look up the latest GST on LIC premium before renewal or purchase, are expected to see higher adoption thanks to this reform.

3. Term Insurance

   Term plans earlier carried a flat 18% GST on Term insurance premiums, directly increasing the cost of protection. Since 22 September 2025, term insurance policies are GST-free, reducing premiums by nearly 18% and boosting affordability. This makes term plans — already the most cost-effective life insurance product — even more accessible to individuals across income groups. Young professionals and first-time buyers stand to benefit the most, as savings compound over long-term coverage. The reduced Term insurance GST rate is expected to encourage more people to secure adequate life cover, improving overall insurance penetration in India.

4. Single Premium Annuity Plans

   Single premium annuity products were earlier taxed at 1.8% GST on the lump sum premium. With the new exemption, these plans are now completely GST-free, reducing upfront costs for buyers. This reform provides substantial relief for retirees who often invest significant amounts to secure a lifelong income. The elimination of GST makes annuities a more predictable and stable option for retirement planning. Senior citizens, in particular, benefit from lower entry costs and better financial security. As a result, annuity-based pensions are expected to gain wider acceptance in the Indian insurance market.

GST Rates for Different Insurance Policies

Does GST for Insurance Offer Tax Savings Benefits?

Yes, you can claim a tax discount for life insurance premiums for which GST was paid. Payments made to keep a life insurance policy are deductible under Section 80C of the Income Tax Act, 1961, and this Section 80C allows you to deduct the whole amount you spend for life insurance premiums, including GST. Remember, this clause allows a maximum deduction of Rs. 1.5 lakh for various tax-saving investments. On the other hand, GST on health insurance qualifies for tax deductions under Section 80D. However, in both cases, retaining your premium payment receipts as proof is vital, and the premium amount and GST rate should be mentioned on these receipts.

Conclusion

There are multiple types of Life Insurance Plans, but from 22 September 2025, the GST treatment is simple and uniform: all individual policies are exempt (0% GST). This reform reduces premiums by nearly 18%, directly benefiting policyholders. Only employer-provided group policies remain under the 18% slab, so you should always check the latest GST on insurance policy before renewing or purchasing.

The good news is that you can continue to claim tax deductions on your premiums under Sections 80C and 80D, ensuring both affordability and tax efficiency.

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