GST relief: Individual insurance buyers exempt from tax; employer-sponsored covers still taxed

From September 22, premiums on individual life and health insurance, including renewals, will be free of GST, lowering household costs. Group insurance, however, remains under the 18% slab.

Bengaluru: Individual insurance buyers have received a major relief from the Goods and Services Tax (GST) Council, which has exempted GST on term and health insurance completely.

Currently, premiums on both are taxed at 18%. The change will apply to all individual life insurance — whether pure protection or unit-linked — as well as individual health insurance, including family floater and senior citizen plans.

Most importantly, existing policyholders will also be exempt from paying GST on renewal premiums from September 22 onwards, lowering their financial burden. This is particularly significant in health insurance, where rising medical costs have long been a concern, said Alok Agarwal, MD and CEO, Zurich Kotak General Insurance Company (India) Limited.

For insurers, there may be short-term adjustments in pricing and compliance, but the long-term impact is expected to be positive as lower entry costs will improve penetration, encourage first-time buyers, and support the sector’s growth, Agarwal added.

The exemption, however, is limited to individual covers only. "Group insurance policies, such as employer-sponsored health or life schemes, will continue to attract 18% GST with no input tax credit (ITC) available to employers. This makes it clear that the policy intent is to directly ease costs for households rather than institutional buyers," said Jignesh Ghelani, Partner at Dhruva Advisors.

While lower premiums are expected to stimulate demand and expand the policyholder base, the classification of these services as “exempt” means that insurers will lose access to input tax credits on expenses linked to such policies. They will be required to reverse ITCs relating to these exempt outputs, he noted.

"The GST Council's decision to exempt health insurance premiums while allowing insurers to utilise input tax credits is a landmark step that combines consumer benefit with industry growth. This reform will make health protection more affordable for millions of families, senior citizens, and small businesses who often find premiums to be a stretch.

By lowering the cost of entry, it encourages more individuals to seek coverage earlier, thereby strengthening the risk pool and improving the sector’s long-term resilience," said Rakesh Jain, CEO, Reliance General Insurance.

At a time when India's healthcare market is poised for significant growth, this reform acts as a timely catalyst by addressing one of the biggest barriers to affordable healthcare, said Naveen Chandra Jha, MD & CEO, SBI General Insurance.

"Whether it is making life-saving drugs more accessible or lowering the cost of health insurance, the move directly tackles a long-standing challenge and will enable millions of families to take a crucial step toward financial and medical security," Jha added.

According to Vishal Gupta, CEO, PhonePe Insurance, the exemption from GST is a significant win for customers, especially those in lower-income brackets. From their perspective, this directly reduces the out-of-pocket cost of purchasing insurance and helps them focus on other essential needs.

"As a family weighs its annual budget, this reduction in tax burden can be the deciding factor in securing their health or their children’s future. This move makes that critical decision fundamentally easier for millions of such families," he said.