Questions Abound On GST Cuts For Insurance
In a landmark reform, the Goods and Services Tax (GST) on individual health and life insurance premiums has been reduced from 18 per cent to zero.
Hyderabad: In a landmark reform, the Goods and Services Tax (GST) on individual health and life insurance premiums has been reduced from 18 per cent to zero. The exemption will take effect on September 22, and is expected to significantly ease costs for policyholders at a time when healthcare expenses are soaring. While many welcomed the decision, questions remain about its scope — especially for policies that renew on the same day — and some policyholders called for additional reforms.
“It is a welcome decision, especially for senior citizens like me. I am paying `1 lakh for just `5 lakh of coverage, which hardly covers major treatment. Now, without GST, I can enhance my limit, which will be a big help. I only hope insurers do not raise their slabs to take advantage of this,” said Mazher Ali Ahmed, a businessman. “The next important step is to make all policies eligible for cashless treatment. Hospitals also need stricter oversight, as they often exclude disposables from the final bill, forcing patients to pay out of pocket.”
Calling the reform progressive, Sarbvir Singh, joint group CEO of Policy Bazaar Fintech, said, “We sincerely thank the government for this monumental decision. It sends a clear message that these are critical products for the economy. By easing the financial burden at a time when healthcare costs are rising, this lowers the entry barrier for millions.”
Insurance agent Madhusudan Reddy clarified that the exemption will apply to both new and renewal policies payable on or after September 22. Premiums already paid will not be refunded. The relief covers individual health and life insurance—including term, ULIPs, endowment plans, family floater and senior citizen policies—as well as riders such as critical illness or accident cover. Top-up and super top-up plans also qualify, and reinsurance for these products has been exempted. However, group and corporate health insurance will continue to attract 18 per cent GST.
That distinction has left group policyholders dissatisfied. “Employees of various organisations and retirees are mostly covered under group health policies. For instance, bank employees and retirees are insured under schemes managed by IBA and nodal banks. These, too, should be treated as individual policies and exempted from GST. At the very least, senior citizens deserve this benefit,” argued C. S. Ravi, a former bank manager.
For individual policyholders, the savings are clear. Reddy noted, “Earlier, a renewal premium of `1,18,000 cost the policyholder. From now on, it will be only `1,00,000.” He added that the exemption applies across annual, semi-annual, quarterly or monthly payments due on or after September 22. “Existing ECS or auto-debit instructions will adjust automatically. Insurers have also been directed by IRDAI to clearly show ‘GST = 0%’ on premium receipts,” he noted.
The NRIs purchasing policies in India will also benefit. Tax incentives under Sections 80C and 80D remain unchanged, offering policyholders the dual advantage of lower premiums and tax savings. Mazher added that insurers should consider offering global plans for Indians travelling abroad. “Currently, we have to buy separate health policies for each country. A global plan would be very useful,” he said.
Reddy cautioned that insurers will lose Input Tax Credit (ITC) on operational expenses, which may limit the benefit passed on to customers. “Industry estimates suggest a net saving of 3–8 per cent for policyholders, depending on the insurer’s business volume. Base premiums may still rise due to medical inflation or mortality risks, though the GST component is permanently removed.”
Experts said insurers are likely to push retail products more aggressively as group policies remain taxed. Employers may also consider shifting from group cover to allowances for individual policies, which are now GST-free. The move is expected to improve insurance penetration, particularly among the uninsured “missing middle.”
