Goods and Services Tax (GST) was launched in India on July 1, 2017, with the aim of simplifying taxation. The ideology was to have ‘one nation, one tax’. It simplified the concept of cascading taxes [service tax, central excise duty, and Value Added Tax (VAT)] for goods and services, especially if they were produced and sold in different states.
As insurance is a financial service, the government imposed GST on insurance in 2017. The applicable rates differed for each insurance instrument and across different types of policies.
Latest GST Rates Update:
In September 2025, the government announced several reforms in regard to GST norms. Among the most impactful reforms is the removal of GST on life insurance premiums for retail and individual policies. For Group policies, the GST rates remain unchanged. This decision has been taken with an aim to make insurance more affordable and encourage more people to safeguard their financial future.
Let’s learn more about GST on life insurance premiums, including the new GST rate updates.
GST Applicability on Different Types of Insurance
Before the GST reforms of September 2025, life insurance policies attracted 18% GST. This meant individuals had to pay an 18% GST on their base premium. With the GST revised rates, the GST Council has reduced this to 0%. This will be effective from September 22, 2025.
The GST on life insurance premiums depended upon the type of policy.
For instance, term insurance premiums attracted 18% GST. This meant that for every ₹1000 of premium, you paid ₹180 as GST. If you added any optional riders, such as accidental death benefits, the extra premium also attracted 18% GST. Now, with the latest GST rates, potential policyholders can opt for more affordable long-term coverage without GST worries.
A Unit-Linked Insurance Plan (ULIP), whose premium also includes fund management services and other ULIP charges, also attracted an 18% GST. This has been reduced to 0% effective 22nd September 2025.
For endowment plans, the GST rate was 4.5% in the first year, which then fell to 2.25% in the following years. Single premium annuity plans, which require you to invest a single lump sum amount, had a GST rate of 1.8%. The latest changes in GST rates have reduced these to 0% and have made it easier for the citizens of India to safeguard their future.
GST Calculation on Insurance Premiums
We mentioned that the various types of life insurance policies had different GST applicability. To better understand the new GST changes and their impact on the premiums for different policies, let’s look at the following examples:
Before September 22, 2025
Suppose your annual term insurance premiums amounted to ₹20,000. With 18% GST, you paid an extra ₹3,600. This made your total outgo ₹23,600.
For an endowment plan with a premium of ₹2,00,000 with a GST component of 4.5%, the taxation (for the 1st year) amounted to ₹9000. After the first year, the GST component dropped to 2.25%, which is ₹4500. A single premium annuity plan faced a tax of 1.8% GST. So, a premium of ₹5 lakhs attracted ₹9000 as tax.
After September 22, 2025
With the GST latest rates, there is no taxation on any of the life insurance policies. You only pay the base premium for your plan.
This can lead to significant savings each year. If you have multiple policies, the difference can run into tens of thousands over time. To plan your savings more effectively, you can use a life insurance calculator and get an idea of the premium rates for different policies.
Exemption on Other Insurance Plans
The Finance Minister also announced new GST changes for health policies in her statement: “Exemption of GST on all individual health insurance policies, including family floater policies and policies for senior citizens, and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country”.
Effective September 22, securing your family’s health will also become more cost-effective as the GST new tax rate also applies to health insurance policies.
In addition, reinsurance will also be exempted from GST.
Conclusion
The GST updated rates bring much-needed relief to households, especially with the removal of indirect taxation on life insurance premiums. This change not only makes essential protection affordable but also supports India’s long-term vision of higher insurance adoption.
Add to that the GST new rate list with cuts on essentials and consumer goods, and the new GST rates may prove to be a major step towards financial inclusion. Whether you are planning to buy term insurance, ULIPs, or an endowment policy, the GST new tax rate will ease your planning and encourage smarter financial decisions.
Disclaimer:
The recent changes in GST rates are only applicable for individual and retail policies. The GST rates for group policies continue to be the same as before.
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