How Does GST on Term Insurance Impact Your Premium?

At the 56th GST Council Meeting, Finance Minister Nirmala Sitharaman announced that from 22 September 2025, premiums for health and term insurance will be exempt from GST. On paper, this means an instant 18% reduction in your premium costs.

But in practice, the benefit depends on when your policy was issued, when the coverage begins, and whether you’re buying a new policy or renewing an existing one.

Introduction

The recent GST Council decision to exempt individual health and term insurance policies from the Goods and Services Tax marks a significant shift in the insurance landscape. It makes essential financial protection more affordable and helps millions of policyholders across India save on their premiums.

With the new exemption:

    • Your premium outgo drops by 18%.
    • Affordability improves, especially for high-value policies.
    • Over long tenures (20–30 years), this can translate into significant lifetime savings.

Let’s break this down so you know exactly how it affects your term insurance premium.

If you need help choosing the right policy, feel free to book a call at a convenient time.

What is the Impact of GST on Term Insurance?

Term insurance premiums were charged at 18% GST until 21 September 2025, after which the tax was fully removed following the GST Council’s announcement of a complete exemption for both health and term insurance.

When a service becomes GST-exempt, insurers lose the benefit of claiming Input Tax Credit (ITC) on their business expenses. This might, over time, prompt a small increase in base premiums to make up for the loss. However, most leading insurers don’t plan to revise premiums right away and will bear this cost themselves.

GST on Different Types of Life Insurance

Here’s how GST applies to life insurance products currently.

Type of PolicyGST Rate (till 21 Sep 2025)GST Rate (from 22 Sep 2025)
Term Insurance18%0%
Health Insurance18%0%
ULIPs18% on charges0%
Endowment Plans4.5% (1st year), 2.25% (renewals)0%
Annuity/Pension Plans1.8%0%
Group Life/Health Policies18%18%

How is GST reflected in policy documents in the case of term insurance policies?

Your term insurance policy document shows three components:

    • Base premium (before tax)
    • GST amount
    • Total premium payable

The GST amount will no longer appear on invoices or renewal receipts.

If you paid your premium before 22 September for a renewal scheduled after that date, your insurer is expected to refund the GST once the renewal becomes active.

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Impact of GST on Term Insurance Policyholders

    • Cheaper premiums: If you’ve paid your premium recently, you’ve probably noticed it’s lower, about an 18% drop since the GST exemption came into effect.
    • More affordable coverage: You can opt for higher coverage at a marginal increase in premium cost.
    • Prepaid plans stay taxed: If you have already paid for 2 to 3 years in advance, GST will still apply for that period.

GST Calculation on Term Insurance Premiums

ScenarioGST Exempt Status What to expect?
Policy issued on or after 22 Sep 2025YesFull 18% benefit on the premium.
Paid before 22 Sep, but policy and cover start after 22 SepYesEligible if both dates are after 22 Sep 2025; insurers should refund GST if already charged.
Cover starts before 22 Sep (even if issued later)NoThe exemption does not apply in this case.
Renewal paid before 22 Sep 2025NoGST still applies since the renewal period begins before the exemption date.
Renewal due after 22 Sep but paid earlyNoGST still applies because the payment was made before the exemption took effect.
Multi-year prepaid policyNoNo refunds will be issued for payments made on or after 22 September 2025.

GST Exemption on Term Insurance Premiums

The GST exemption on term insurance is now fully in effect. The exemption applies to:

    • All new individual term insurance policies purchased on or after 22 September 2025
    • All renewal premiums due and paid on or after 22 September 2025

Why Choose Ditto for Your Term Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Why customers like Aaron love us:

GST on Term Insurance
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Ditto's Take on the GST Exemption

The 0% GST reform on individual life insurance is a significant consumer-friendly tax change, designed to make vital financial protection more accessible and sustainable in the long run.

    • For all policyholders whose policies started or renewed on or after 22 September 2025, the benefit is clear and immediate, with premiums now lower than before the exemption.
    • The 0% GST rule is now firmly in place for all eligible current and future individual policy payments.
    • To confirm eligibility, always check your specific policy issuance, risk commencement, and renewal dates with your insurer.

Frequently Asked Questions (FAQs)

Are riders and add-ons under term insurance also GST exempt?

Yes, riders such as critical illness, accidental death, and waiver of premium that are tied to individual policies are included in the GST exemption.

Why do group insurance policies still attract GST?

Group insurance plans are business contracts between insurers and employers, which allow insurers to claim Input Tax Credit (ITC) on their expenses. The GST exemption was introduced mainly to make individual policies more affordable, which is why group plans continue to be taxed.

Are policies purchased before September 22 but renewed after eligible for exemption?

Yes, renewal premiums payable on or after September 22 are GST exempt. Insurers will reflect the exemption on the renewal premium invoice.

Can existing policyholders benefit from the GST exemption by cancelling and rebuying policies?

It's generally not advisable. Cancelling may lead to loss of premiums due to deductible charges and underwriting restrictions on reissuance. The risk and cost usually outweigh GST savings.

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