GST on Life & Health Insurance Slashed: Should You Wait Until September 22, 2025?

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by

Himanshu
in ,

The Indian government has recently announced a major change in the taxation of life and health insurance premiums. From September 22, 2025, the 18% Goods and Services Tax (GST) on these premiums will be completely removed. This is a significant move that directly affects policyholders, insurers, and insurance agents.

If you are considering buying a new policy or renewing an existing one, understanding the impact of this GST cut is essential. Let’s break it down in detail.

What Has Changed?

FeaturePrevious SystemNew System (From Sep 22, 2025)
GST on Life & Health Premiums18% GST applied0% GST (fully exempt)
Impact on PolicyholdersHigher cost due to 18% taxPremiums become more affordable
ITC for InsurersCan claim Input Tax CreditNo Input Tax Credit on premiums
Agent Commission GST18% GST (paid via Reverse Charge)18% GST remains on commission
Benefit TimelineImmediate payments taxedGST exemption effective from policy start/renewal date on or after Sep 22

How Much Can You Save?

To visualize the savings, here’s a table comparing typical premiums before and after GST exemption:

Base Premium (₹)Premium with GST (Old)Premium after GST RemovalSavings (₹)Savings (%)
5,0005,9005,00090018%
10,00011,80010,0001,80018%
15,00017,70015,0002,70018%
20,00023,60020,0003,60018%

Key Insight: Policyholders can save up to 18% on premiums, though insurers may slightly adjust base premiums due to lost Input Tax Credit (ITC). This could reduce net savings to around 15%, depending on the insurer’s pricing strategy.

Should You Delay Your Purchase or Renewal?

While the GST exemption sounds enticing, delaying premiums may not always be beneficial. Here’s why:

ScenarioRecommendationNotes
New Policy with no urgent needWaiting until Sep 22 may be beneficialYou’ll get GST-free premiums, saving up to 18%
Renewal due before Sep 22Do not delayCoverage gaps or late renewal may nullify benefits like no-claim bonuses
Renewal due on/after Sep 22Wait to enjoy GST exemptionEnsure renewal date aligns with GST-free period
Advance payment already madeNo refundGST paid on previous premiums cannot be refunded

Important: The GST exemption is applied based on policy issuance or renewal date, not payment date. Delaying payment for policies renewing before September 22 will not give you the GST benefit.

Impact on Different Types of Insurance Policies

  1. Health Insurance
    • Families and senior citizens pay lower annual premiums.
    • Reduces out-of-pocket expenditure and makes comprehensive coverage more affordable.
  2. Life Insurance
    • Term plans become cheaper, encouraging young earners to secure financial protection.
    • Endowment and money-back plans benefit from reduced premium costs.
  3. ULIPs (Unit-Linked Insurance Plans)
    • Investment-linked premiums become more cost-effective.
    • Improved long-term returns due to lower upfront tax burden.
  4. Insurance Agents
    • GST on agent commissions (18%) continues to be paid by insurers under Reverse Charge Mechanism (RCM).
    • Industry bodies have requested GST exemption for commissions to fully align with premium tax exemption, but it is not yet implemented.

Key Takeaways for Policyholders

  • Effective Date: September 22, 2025
  • Maximum Savings: Up to 18% on life and health insurance premiums
  • Renewal Advice: Renew before expiry to maintain coverage; new policies after Sep 22 benefit from GST exemption
  • Insurance Agents: Commission GST still applies; no direct change for agents yet
  • Market Impact: Expected to increase insurance penetration and reduce financial burden for families

Conclusion

The GST cut on life and health insurance is a landmark change for Indian policyholders. While it creates significant savings, timing your policy renewal or purchase is crucial to fully benefit. For new buyers, waiting until September 22 is advantageous. For renewals due before this date, timely payment ensures uninterrupted coverage.

Overall, this move promotes financial security, encourages insurance adoption, and makes protecting your health and life more affordable than ever.