New Delhi, September 15, 2025 – Insurance in India just became more affordable. The GST Council, in its 56th meeting on September 3, 2025, approved an exemption on all individual life and health insurance policies. This decision reduces the cost of premiums and gives direct relief to millions of policyholders.
To ensure smooth implementation, the Secretary of the Department of Financial Services (DFS), Shri M. Nagaraju, chaired a high-level meeting in New Delhi. Senior officials from IRDAI, CMDs of public sector insurance firms, and CEOs of private sector companies joined. The Secretary stressed that insurers must pass on the full benefit to customers and avoid keeping the gains.
He also urged companies to launch public awareness campaigns. These campaigns should explain how the GST exemption reduces premiums and highlight the importance of insurance. With this move, the government aims to increase affordability and expand coverage, especially among middle-income households.
Why the GST Exemption Matters
Until now, life and health insurance premiums carried a GST of up to 18%. This tax made policies expensive for families already struggling with rising costs. For example, a health plan with a premium of ₹25,000 required an extra ₹4,500 as GST. Similarly, a term life policy worth ₹15,000 came with an additional ₹2,700 in tax.
The exemption removes this extra burden. Policyholders will now pay only the base premium. As a result, both new and existing customers will see lower bills. This step makes insurance more attractive, especially for those who previously avoided buying it because of high costs.
In addition, the decision supports the government’s broader goal of financial inclusion. More families can now protect themselves against medical emergencies and unforeseen risks without worrying about tax-heavy premiums.
Key Highlights from the DFS Meeting
During the meeting, Shri Nagaraju gave three clear directions:
- Pass benefits immediately: Insurers must adjust premium invoices so that customers see lower costs without delay.
- Launch awareness drives: Companies should actively inform customers about the price cut and encourage new buyers.
- Expand penetration: With cheaper premiums, insurers have a duty to reach rural and semi-urban areas, where awareness is low.
The Secretary called this reform not just a financial measure but a social responsibility. He reminded insurers that affordable insurance strengthens household security and builds national resilience.
Industry Response
The session included top industry leaders such as:
- Shri Swaminathan S. Iyer, Whole-time Member (Life), IRDAI
- Shri R. Doraiswamy, MD & CEO, LIC of India
- Ms. Girija Subramanian, CMD, New India Assurance
- Shri Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance
- Senior representatives from ICICI Lombard, Aditya Birla Sun Life Insurance, and others.
Leaders welcomed the reform. They agreed that the exemption will boost demand and bring more people under insurance coverage. Several CEOs also predicted that insurance penetration could double within a few years, provided outreach campaigns are successful.
Direct Benefits for Policyholders
The reform delivers immediate savings. Consider the following examples:
- A ₹25,000 health policy earlier cost ₹29,500 with GST. Now, it costs exactly ₹25,000.
- A ₹15,000 life policy earlier required ₹17,700. After exemption, it stays at ₹15,000.
- Senior citizens with higher premiums save the most. Their policies often included thousands of rupees as tax.
These savings free up household budgets and make it easier for families to continue or renew coverage. In addition, affordable premiums can motivate young professionals to start their insurance journey earlier.
Boost to Insurance Penetration in India
India’s insurance penetration remains low compared to global averages. According to IRDAI, life insurance penetration stands at 3.2% of GDP, while non-life (including health) is just 1%. In contrast, developed countries report much higher figures.
High costs have been a key barrier. With the GST exemption, India has removed one of the most visible hurdles. Experts believe the reform will add millions of new policyholders in the next five years. This progress will help India move closer to its vision of universal financial security.
Wider Economic and Social Impact
The exemption benefits extend beyond cheaper premiums. Its ripple effects can strengthen the economy and society in several ways:
- Improved financial stability: Families with insurance face fewer shocks during emergencies.
- Relief for public healthcare: Wider health insurance coverage can reduce dependence on government hospitals.
- Encouragement of savings: Life insurance doubles as a savings instrument, promoting financial discipline.
- Growth in employment: Higher demand for policies will create jobs for agents, advisors, and support staff.
Therefore, this reform is not just about tax relief. It plays a critical role in building a more resilient economy and society.
Challenges That Remain
Despite the benefits, implementation challenges exist:
- Insurers must avoid hidden charges that cancel out the savings.
- Companies should not delay in revising premium structures.
- Awareness in rural India remains low. Without effective communication, the impact will stay limited.
- Agents and advisors need training to explain the new benefits clearly to customers.
The DFS Secretary assured that the government will closely monitor insurers. Any attempt to dilute or delay the benefits could invite strict action.
Conclusion
The exemption of GST on life and health insurance policies marks a turning point for India’s insurance sector. By removing an 18% tax burden, the government has made coverage affordable for millions of households.
If insurers act responsibly—by reducing premiums, running campaigns, and expanding outreach—this reform could transform the insurance landscape. Families will find it easier to secure their futures, while the nation will benefit from a stronger safety net.
For policyholders, the message is clear: insurance is now cheaper, simpler, and more accessible. Whether you want to safeguard your health or protect your family’s future, there has never been a better time to buy insurance.
As Shri Nagaraju emphasized, this is not just a financial reform. It is a step towards universal financial protection for every Indian household.
Frequently Asked Questions (FAQ) on GST Exemption for Insurance
1. When does the GST exemption on insurance start?
The GST Council approved the exemption on September 3, 2025, during its 56th meeting. The benefit applies from the date notified by the government.
2. Which insurance policies are included?
The exemption covers all individual life and health insurance policies. This includes term plans, traditional life insurance, ULIPs, and health insurance plans. Group insurance policies are not included.
3. How much can policyholders save?
Earlier, premiums carried 18% GST. For example, a ₹25,000 health policy cost ₹29,500 with tax. Now, the same policy costs only ₹25,000. Savings can be as high as 18% of the premium.
4. Will existing policyholders benefit too?
Yes. The DFS Secretary has confirmed that both new and existing policyholders must receive the benefit. Renewal premiums should no longer include GST.
5. Do insurers adjust premiums automatically?
Yes. Insurers must remove the GST component from invoices. Customers should see lower bills immediately.
6. Does the exemption cover motor or travel insurance?
No. The exemption applies only to individual life and health insurance policies. Motor, travel, and other general insurance policies remain outside this relief.
7. How does this change improve affordability?
By removing GST, premiums drop by up to 18%. Lower costs make policies more attractive. More families are likely to buy insurance, which improves financial security nationwide.
8. What should policyholders check in their next premium bill?
Customers should check that the GST line is removed. If GST still appears, they should immediately contact their insurer.
9. Does the GST exemption affect claim settlement?
No. The exemption applies only to premium pricing. Claim settlement remains the same under the existing policy terms.
10. How do senior citizens benefit?
Senior citizens often pay high premiums. Without GST, their costs reduce sharply, making health insurance more affordable in retirement.
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