GST on Term Insurance in India: What You Need to Know

GST on Term Insurance in India in 2025 Goods and Services Tax (GST) is a tax applied to most goods and services in India, including term insurance. While the premium you see on brochures may seem affordable, an additional 18% GST is levied on top of it, increasing your actual out-of-pocket cost. In the case of term insurance, which usually spans 30–40 years, this tax adds up significantly over time. So, understanding how GST works across different policy types, like regular, return-of-premium, and limited-pay options, can help you plan better and avoid surprises.

In 2025, talks of a GST overhaul are making headlines, especially around reducing rates in the 12% slab. While this sounds like welcome news for many consumers, it’s important to note that term insurance isn’t part of this discussion because it falls under the 18% GST slab, not the 12% one. 

If you’ve ever paid more than the quoted premium, GST is why. Over the decades, this 18% tax adds up. So whether you’re buying a regular term plan, an ROP variant, or a single-pay policy, it helps to understand how GST impacts your total cost and how to plan for it.

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What is the Current GST Rate on Term Insurance (as of 2025)?

As of now, term insurance premiums are taxed at 18% GST, a rate that has remained unchanged since GST was implemented in July 2017. The tax is levied on the entire premium amount for term plans, with no rebate or threshold exemption.

For example, let’s say your base annual premium is ₹10,000. Applying 18% GST adds ₹1,800 in tax, making your total payable ₹11,800 each year over a 30-year term, which translates to ₹54,000 paid in taxes alone, which is a substantial amount for something with no investment return.

While this doesn’t reduce the protection value of the policy, it does increase the overall cost and should be factored into your budgeting.

What is the GST on Different Types of Life Insurance Plans? 

While term insurance has a straightforward GST structure, other life insurance products follow slightly more complex rules:

1) Term Insurance:

GST is applied at 18% on the full premium. No rebates or adjustments apply.

2) ULIPs (Unit Linked Insurance Plans): 

GST is applied in parts: 18% on the mortality charges and 18% on fund management charges. However, since these costs are deducted internally, the tax impact is less visible.

3) Endowment and Money-Back Plans:

These attract GST at 4.5% in the first year and 2.25% in subsequent years. The lower rate is because these are partly investment products.

4) ROP (Return of Premium) Term Plans: 

Although these offer life cover similar to term plans, the premiums are partly refundable, giving them an investment-like character; however, no interest or profit is earned, and GST is not refunded. Hence, they enjoy concessional GST rates similar to endowment plans:

1. 4.5% in the first year, and
2. 2.25% from the second year onward.

The tax treatment varies because GST is structured around the nature of the product; pure risk covers full-rate GST, while investment-linked policies have a blended tax structure.

Ditto’s Take on Return of Premium Term Insurance Plans

Many people assume that since ROP plans "return" the premiums at maturity, they must be more tax-efficient. But that’s not entirely true.

• Lower GST, but higher premiums: ROP plans enjoy concessional GST rates (4.5% in year one, 2.25% thereafter), but their premiums are often 70% to 100% higher than regular term plans.
• Higher total cost: Even with a lower tax rate, the total payout (premium + GST) ends up being significantly more due to the inflated base premium.
• GST is non-refundable: The GST you pay is a sunk cost. Even if you get your premiums back at the end of the term, the GST amount is not returned.
• Misleading value proposition: The idea of “getting your money back” sounds appealing, but when you factor in inflation and opportunity cost, the returns don’t hold up.
• Better alternative: A regular term plan combined with consistent investing typically offers better transparency and long-term financial value.

Impact of GST on Term Insurance Policyholders

From the policyholder’s perspective, GST increases the actual cost of owning a term insurance policy. While the base premium may seem affordable, the added tax component can significantly impact your annual budget, especially for large coverage amounts.

Another key point: GST is not refundable. Unlike income tax benefits under Section 80C or 80D, there is no provision to claim GST as a deduction. Once paid, it’s a sunk cost. You’ll still get your Section 80C deduction for the total premium paid (inclusive of GST), but the tax itself isn’t recoverable in any form.

So, even though term plans are cost-effective in terms of coverage-to-premium ratio, you must account for GST in your annual insurance budget. Ignoring it may lead to shortfalls or missed payments if you're working with a fixed premium cap.

Ditto’s take: When budgeting for term insurance, most people focus solely on the base premium. But GST can make a real difference, especially for significant premiums. This is why we always inform customers of the entire cost upfront, including GST.

How GST Affects High-Value Term Plans

For policies with a high sum assured, say ₹1 crore or more, the GST burden becomes more noticeable. These plans often have annual premiums in the range of ₹20,000 to ₹30,000, depending on your age and health.

Example of how GST can affect high-value term insurance plans:

An 18% GST on a ₹25,000 premium adds ₹4,500 every year. Over a 30-year term, that's ₹1.35 lakh paid in taxes alone. While it doesn’t affect your policy’s benefits, it can have a tangible impact on long-term affordability, especially if you're paying premiums from a fixed income or retirement corpus.

This is also why many people underestimate the total cost of a term plan over its full tenure. So when calculating affordability, it’s critical to check total premiums, including GST, not just the base rate shown on brochures.

Is There Any Way to Save GST on Term Insurance?

As of now, there’s no way for individual policyholders to avoid or reduce GST on regular pay term insurance. The 18% tax is standard and unavoidable, applying regardless of your premium size or payment method.

However, there’s a smart workaround: Limited Pay option in Term Insurance

• If you opt for a Limited Pay term insurance plan where you pay premiums for a shorter duration (say 10 or 15 years) instead of the full policy term (say 30 or 40 years), you can reduce the total GST outgo over the life of the policy. Here’s why:
• GST is applied only while you're paying premiums. So if you pay for 10 years instead of 30, you only pay GST for those 10 years. Even though annual premiums may be slightly higher in Limited Pay options, the total amount paid to the insurer (and hence total GST) is usually lower than Regular Pay, especially over long tenures.

Let’s take a look at an example:

• Regular Pay: ₹25,000/year × 30 years = ₹7.5 lakh premium → ₹1.35 lakh GST
• Limited Pay (10 years): ₹55,000/year × 10 years = ₹5.5 lakh premium → ₹99,000 GST
• Total savings in GST: ₹36,000 (plus your premiums stop 20 years earlier)

So, the bottom line is this:

You can't eliminate GST on term insurance, but by choosing a Limited Pay option, you may reduce the total amount of GST paid while also benefiting from paying premiums earlier. It's especially helpful for those planning around retirement or with limited future income.

Are there input tax credits on GST paid on term insurance plans?

There are no input tax credits or GST rebates available to salaried individuals for insurance premiums, and the government has not announced any plans to reduce the rate for life insurance products.

So while it’s important to understand how GST applies, there’s currently no legitimate workaround or rebate; it’s a fixed cost you need to factor in.

GST exemptions for NRIs purchasing Term Insurance Plans in India

There is one important exception to note: Non-Resident Indians (NRIs) may be exempt from GST on life insurance premiums if:

1. The policy is purchased while residing outside India, and
2. The premium is paid from an NRE (Non-Resident External) bank account in foreign currency.

This GST exemption is based on the principle that such transactions qualify as exports of services under Indian tax law. However, the exemption does not apply if the premium is paid from a resident account or an NRO account. So, NRIs should be careful about the mode of payment to ensure they benefit from the tax waiver.

GST on Single-Pay and Limited-Pay Term Insurance Plans in India 

GST also applies to single-pay and limited-pay term insurance policies. Here’s how it works:

1. GST on Limited Pay Plans: In limited-pay plans, GST is levied annually on each year’s installment. If you're paying ₹30,000 a year for 10 years, the GST adds ₹5,400 every year, for a total of ₹54,000 over the premium payment term.
2. GST on Single Pay Plans: In single-pay plans, where you pay the entire premium upfront, 18% GST is charged on the lump sum amount. If your single premium is ₹1 lakh, you’ll pay ₹18,000 in GST, taking your total payment to ₹1.18 lakh.

So, regardless of how you pay, whether all at once or over time, the GST remains constant at 18% and significantly impacts the upfront or annual premium outgo.

How is GST reflected in Policy Documents in the case of Term Insurance Policies?

When you receive a premium quote or policy document, insurers are required to provide a clear breakdown of the charges. This includes:

• Base premium
• GST amount
• Total payable

These values are shown not just at the proposal stage but also in premium receipts, annual policy summaries, and renewal notices. Keeping these documents is important for two reasons: they help you track total costs and are useful when claiming income tax deductions under Section 80C.

Even though GST itself can’t be deducted, the entire premium, including GST, qualifies for a deduction. That’s why it’s important to save receipts and maintain clear records for tax filing.

Growing Demand to Reduce GST on Insurance Premiums

Insurance is considered a social good, as it is essential for building financial resilience in the face of medical emergencies, accidents, or untimely death. 

However, the high tax rate makes these products more expensive, discouraging wider adoption, especially in a country where insurance penetration remains low. We have covered this in earlier articles here and here. You can check it out if you want more information.

The current rates, especially the 18% GST on term insurance and health insurance,  are perceived as a significant burden, particularly for middle-class families and senior citizens seeking long-term financial protection.

Hence, there has been a growing demand from industry bodies, financial advisors, and policyholders to reduce the Goods and Services Tax (GST) on life and health insurance premiums. 

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Conclusion

Despite the added tax, term insurance remains one of the most valuable financial tools for long-term protection. Here’s what you should keep in mind:

• Factor GST into your total premium, not just the base cost: Always look at the final premium with GST included to evaluate whether the plan fits your long-term budget comfortably.
• Don’t let tax concerns delay important coverage: The 18% GST may feel significant, but it’s negligible compared to the financial strain your family could face without a term plan.
• Get help balancing cost and coverage: If you’re unsure which policy offers the best value after tax, consult a Ditto advisor to find a plan that fits both your needs and your wallet.