What is GST on Life Insurance Premiums?
India’s Goods and Services Tax, or GST, was launched on July 1, 2017, and rolled many different indirect taxes, such as service tax and VAT, into one. Life insurance, being a financial service, was brought into this new tax system. A GST was applied to every premium a policyholder paid.
The old GST on insurance premium was a standard 18% for most types of life insurance. This tax was applied to the premium, driving up the total cost for you.
But the GST Council has announced a dramatic shift. Starting September 22, 2025, the GST on life and health insurance premiums will fall to zero. This is a game-changer as policyholders will pay nothing in GST on their premiums, making these essential financial shields more accessible.
GST Rates on Life Insurance Before and Now
Here is a simplified breakdown of how GST was applied to different life insurance premiums and the updated rates.
| Type of Life Insurance |
Previous GST Rate |
How GST Was Applied |
Updated GST Rate (effective from 22 Sept.) |
|---|
| Term Life Insurance |
18% |
GST was charged on the entire premium. |
0% |
| Endowment/Traditional Plans |
18% |
GST was charged only on the risk (insurance) portion of the premium. |
0% |
| Unit-Linked Insurance Plans (ULIPs) |
18% |
GST was charged on the risk cover portion, as well as on other charges (e.g., fund management). |
0% |
| Health and Rider Add-ons |
18% |
GST was charged on the entire rider premium. |
0% |
All life insurance premiums in India and their related variants now carry zero GST, offering substantial financial relief to all policyholders.
How GST Differs Across Various Types of Life Insurance?
The move to GST from the old service tax system created a uniform tax rate. This directly changed how much policyholders paid for various types of insurance policies:
Term Insurance
Term insurance is a very straightforward life insurance that gives you pure risk coverage for a fixed time. Previously, these simple plans carried an 18% GST on the premium. With the latest reforms, the GST on term insurance is now 0%. This directly lowers the barrier to entry for these crucial protection plans.
Endowment Plans
An endowment plan is a mix of two things: insurance protection and a savings tool. You get a lump sum payout at maturity or if you pass away during the term. Calculating GST on these plans used to be complicated. The tax only applied to specific parts of the premium, but the new guidelines simplify everything. The effective GST on an endowment premium is now zero.
Single Premium Annuity Plans
You fund a single premium annuity plan with one lump-sum payment. In return, you get a stream of regular income for the rest of your life. While these plans did have their own GST rate, that has also been updated. The GST on these annuity plans is now 0%.
Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans (ULIPs) offer a combination of life insurance and investment. GST has various impacts on ULIPs, given that it has a dual nature.
- Premium Allocation Charges: The fees taken from your first payment now have a 0% GST.
- Fund Management Charges: The tax on fund management fees, which affects your investment return, is now 0%.
- Mortality Charges: GST on the core insurance element, known as mortality charges, has been cut to 0%.
What is the Overall Impact of GST on Your Premiums?
Previously, the inclusion of an 18% GST made life insurance premiums notably more expensive for policyholders across all product types. This tax component increased the overall cost of securing financial protection.
The new reform, which reduces the GST to zero, has a direct and highly positive impact. The most significant effect is the immediate reduction in the premium amount you pay. With the tax component removed, policyholders now only need to pay the base premium set by the insurer. This makes life insurance more affordable, accessible, and an even more attractive tool for financial planning and securing your family’s future.
Why Understanding GST on Life Insurance Matters?
Grasping how GST works with your life insurance premium is fundamental to good financial planning. Being aware of the exemption is important for a few powerful reasons:
- Better Budgeting: When you realize that there is no extra cost on your premium, it will allow you to better budget. It makes products such as term insurance extremely economical.
- Clearer Choices: This information lets you stack up different policies on equal footing. You can focus on what matters—the features and the benefits—not on tricky tax math.
- More Value for Your Rupee: A 0% GST means your money works harder. More of it goes straight to your coverage and investments, boosting the policy’s overall worth. Riders and other add-ons, like critical illness protection, also become more affordable, helping you build comprehensive coverage without an extra tax hit.
What are the GST Implications on Life Insurance for NRI?
Non-Resident Indians (NRIs) who purchase life insurance policies in India were also previously required to pay the 18% GST. While some exemptions were available if premiums were paid in foreign currency through NRE accounts, the process could be complex.
The new GST reform simplifies this entirely. Effective September 22, 2025, the life insurance GST rate for NRIs is now zero, irrespective of the payment method or currency used. This makes Indian life insurance products significantly more attractive and straightforward for NRIs, as no special waivers or invoices are needed to claim GST relief.
New Updates: GST Exemption (2025 GST Council Decision)
In a move that puts consumers first, the 56th GST Council meeting, overseen by Finance Minister Nirmala Sitharaman, declared a full GST exemption on insurance premiums.
- Effective Date: The new rule starts on September 22, 2025.
- Scope of Exemption: The 0% GST rate applies to every individual life and health insurance policy without exception. This covers term plans, ULIPs, endowments, and any attached health riders.
- Impact: This decision makes buying insurance much affordable. The aim is to boost insurance ownership nationwide and give policyholders a real financial break.
How to Save Tax on GST Paid for Life Insurance?
You can reduce your tax liability by leveraging the payments made towards life insurance premiums. The life insurance premium GST is eligible for tax deductions under Section 80C of the Income Tax Act, 1961, allowing you to claim up to ₹1.5 lakh annually in deductions for premiums paid.
Also, under Section 80D, you can claim deductions up to ₹1 lakh annually for GST paid on health insurance premiums for yourself and your family, including your parents. Furthermore, claims received from life insurance policies are eligible for tax exemptions under Section 10(10D).
Wrapping it Up
The journey of GST on insurance premium is a victory for the consumer. Where the original GST system added another layer of cost, the new reform completely strips it away. Moving to a 0% rate is a landmark win for every policyholder. The change delivers a more affordable, transparent, and manageable insurance environment. The result is more than just financial relief. It paves the way for wider insurance adoption, empowering people to secure their family’s future with greater confidence and economy.
FAQs about GST on Life Insurance Premium
1
Has the GST rate on life insurance policies changed under the new reforms?
Yes, absolutely. The GST on insurance premium has been significantly changed, reducing it from 18% to 0% under the new reforms.
2
From when are the revised GST rules on life insurance premiums applicable?
The revised GST rule, which introduced the 0% rate on life insurance premiums, is applicable from September 22, 2025.
3
Is GST charged on maturity proceeds of a life insurance policy?
No, GST is never charged on your policy’s maturity proceeds. Those payouts are considered a benefit and are not subject to GST.
4
Is GST applicable on rider premiums like accidental or critical illness cover?
No. Following the new reforms, GST is no longer applicable on rider premiums. The 0% GST rate applies to the entire policy, including add-ons like accidental death or critical illness riders.
