GST on health and life insurance premiums cut to zero; will individual policyholders pay less premium now? Understand with example

At the 56th GST Council meeting held on Wednesday, September 3, Finance Minister Nirmala Sitharaman announced gst rate cut to zero on individual health insurance policies. This is a big relief for health and life insurance policyholders as they don't need to pay tax on their premiums. 

What is the current GST rate on insurance premiums?

Currently, policyholders pay 18 per cent tax on insurance premiums, which is now reduced to zero. This means policyholders only need to pay the base premium now.

For example, if the base premium is Rs 200, customers pay 18 per cent tax on it, which is equal to Rs 236. Once the 0 tax reform is implemented from September 22, 2025, they don't need to pay any tax on the premiums.

According to industry experts, ULIP plans, family floater plans, and term plans will also be exempted from GST.

Commenting on the new tax reform for health and life insurance policy premiums, Shobana Kamineni, executive chairperson, Apollo Healthco said, "Zero GST on health and life insurance is a masterstroke—making protection a right, not a privilege. Reductions on medicines and supplies bring affordable care to every household. By putting empathy and the middle class at the center, the government has enabled millions to access healthcare with dignity. As India’s largest pharmacy chain and digital health provider platform, we welcome these reforms, which help us serve deeper and shift the nation’s focus from illness to prevention—building a healthier, stronger Vikshit Bharat."

Vaqarjaved Khan, CFA, senior fundamental analyst, Angel One Ltd said, “GST council has officially exempted individual life and health insurance premiums from the 18% GST bracket from 22nd September. This includes term insurance, ULIPs and health policies. For term insurance, GST exemption could result in notable cost reduction making them more affordable. On the other hand insurers may lose eligibility for input tax credits. For ULIPs, these products contain significant investment component hence direct impact of exemption may not necessarily bring in reduction of 18% premiums for such a product.”

Prashant Nair, lead analyst for pharma and healthcare, Ambit Capital:
Hospital and diagnostic services remain exempt from GST. Lower GST rates on inputs would help as it reduces unabsorbed input tax credit and could boost margins to some extent. Elimination of GST on health insurance premiums could boost insurance coverage and, in turn, benefit hospitals by improving their ability to pay. Lower GST rates on medicines are good for patients but largely neutral for pharma companies.