The GST Council, in its 56th meeting, unveiled a landmark reform set to benefit households across the country. It announced the complete removal of Goods and Services Tax (GST) on premiums paid for life and health insurance. Finance Minister Nirmala Sitharaman confirmed that the 18% tax earlier levied on individual life and health insurance plans has been abolished with effect from September 22, 2025.
This policy change is designed to make insurance more affordable, strengthen financial inclusion, and give families direct relief from the rising cost of medical and life protection. For those relying on senior citizen health insurance, where premiums are already significantly higher due to age-linked risks, the removal of GST is particularly impactful.
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Government’s intention behind the reform
For years, policymakers, insurers, and consumer advocates have debated the need to reduce the tax burden on essential financial protection products. Unlike luxury items, insurance is a necessity—providing families with a safety net against medical emergencies and unforeseen loss of income.
The government has now acted on this sentiment by ensuring that the costs of life and health coverage are brought down. The Finance Minister emphasised that this measure will directly benefit households by lowering the amount they pay on premiums and, importantly, help increase insurance penetration in India, which still lags behind global averages.
Key details of the announcement
| Aspect | Details |
| New Tax Rate | 0% (reduced from 18%) |
| Effective Date | September 22, 2025 |
| Applicable Policies | All individual life and health insurance plans, including term insurance, ULIPs, family floater health covers, and senior citizen health insurance |
| Excluded Policies | Group insurance policies, such as employer-provided schemes, will continue to attract 18% GST |
| Government’s Stance | The GST Council reached unanimous consensus; the Finance Minister directed insurers to pass on the benefit directly to consumers |
How policyholders benefit
This decision brings immediate savings for individuals and families. For example, a family floater policy with an annual premium of ₹30,000 earlier attracted ₹5,400 as GST. With the tax now at zero, the premium effectively drops back to the base rate.
Similarly, a senior citizen paying ₹50,000 annually for health coverage previously paid an additional ₹9,000 as GST. With the new rule, that amount is no longer required, creating substantial savings for older policyholders.
The removal of GST is also expected to encourage more first-time buyers to purchase health and life cover, as affordability is one of the biggest barriers to uptake. This policy reform lowers that barrier significantly.
Why premiums will not fall by the full 18%
It is important to note that while the tax has been removed, premiums may not fall by the complete 18%. This is because insurance companies will no longer be able to claim input tax credits on their operational costs, such as distribution, claims management, and administrative expenses.
Industry analysts estimate that about 3–4% of these costs could be passed back into the base premium. As a result, the net reduction in premiums for policyholders may range between 14–15% instead of the full 18%. Even so, the savings remain significant and mark a clear step forward in making coverage affordable.
Impact on health insurance
The rising cost of healthcare has made health insurance indispensable for families. Medical inflation, driven by advanced treatments, diagnostics, and hospital charges, has placed additional stress on households. Removing GST from health insurance premiums directly reduces the financial strain.
This is particularly relevant for senior citizen health insurance, where premiums are already among the highest in the market. Older individuals often face exclusions, co-payment clauses, and higher base costs. The removal of GST ensures that they are not further penalised for purchasing necessary protection.
For younger families, the change makes family floater plans more accessible, encouraging them to secure coverage earlier in life.
Impact on life insurance
Life insurance is equally important as a financial protection tool. Whether it is term insurance, ULIPs, or savings-linked policies, life insurance provides long-term stability to households in the event of unforeseen loss.
With GST now removed, premiums for these products become more affordable, encouraging higher adoption. This move also aligns with the government’s broader vision of improving financial inclusion by ensuring that every household has at least one form of life cover.
Exclusion of group insurance policies
While the reform covers individual plans, group insurance policies—such as those offered by employers—will continue to attract GST at 18%. This distinction has been made because group policies already benefit from lower premiums due to collective bargaining and simplified underwriting.
By focusing on individual policies, the government aims to directly help households and self-payers who bear the full cost of insurance without employer subsidies.
Wider economic and social implications
This policy reform has several broader benefits:
- Higher penetration: More families are likely to purchase insurance, reducing reliance on out-of-pocket medical expenses.
- Financial security: Households gain affordable access to tools that protect against health and income shocks.
- Industry growth: Lower costs encourage greater adoption, strengthening the insurance sector.
- Public health benefits: Wider access to health insurance ensures better utilisation of healthcare services and reduces the burden on government-funded systems.
Government’s directive to insurers
A critical part of the announcement was the Finance Minister’s mandate that all financial benefits must be passed directly to consumers. This ensures transparency and prevents insurers from adjusting base premiums in ways that absorb the benefit of GST removal. The regulator will monitor compliance, ensuring policyholders see real savings.
Conclusion
The government’s decision to remove GST on life and health insurance premiums is a landmark reform that addresses one of the biggest barriers to affordable coverage. For families managing everyday healthcare costs, and for retirees relying on senior citizen health insurance, the reform reduces financial pressure and makes essential protection more accessible. By eliminating the tax burden, the path to securing life and health cover is now clearer, fairer, and more affordable. This move not only empowers households but also strengthens the foundation of financial security for millions across India.
