India will exempt all individual health and life insurance policies from the Goods and Services Tax (GST), effective September 22, 2025, marking a significant policy shift aimed at improving insurance affordability and penetration.
According to The Economic Times, the GST Council at its 56th meeting, chaired by Finance Minister Nirmala Sitharaman, recommended that individual health and life insurance products be brought under the NIL GST bracket. The exemption covers term life, unit-linked insurance plans (ULIPs), endowment policies, family floater health plans, senior citizen policies, and related reinsurance.
Currently, insurance premiums for health and term life products attract 18 per cent GST. Removing this levy reduces the effective tax rate on these products to zero for policyholders. The Council noted that this step responds to long-standing demands from industry stakeholders and consumer groups seeking to ease the indirect tax burden on essential financial protection products.
Industry leaders have welcomed the move. Dr Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance, stated that the decision comes at a time when medical inflation is rising and would help expand healthcare protection to a broader segment of the population. The change is expected to boost demand, deepen penetration, and strengthen household financial resilience against health-related expenses.
However, the exemption also carries operational implications for insurers. With output GST reduced to zero, companies will no longer be able to claim input tax credit (ITC), potentially impacting cost structures. Analysts suggest that insurers may need to review pricing models and operational efficiencies to offset this effect.
The debate on GST exemption for insurance has been ongoing for years, gaining renewed momentum in mid-2024 after Road Transport and Highways Minister Nitin Gadkari urged the Finance Ministry to remove the tax on health and life insurance premiums. The Council’s decision reflects both policy continuity and recognition of insurance as a social good rather than a discretionary financial product.
For policymakers, the measure is expected to support greater financial inclusion and complement flagship healthcare initiatives, while for insurers, it presents both an opportunity to expand reach and a challenge to adapt business models in the absence of ITC benefits.
