GST 2.0 makes term insurance tax-free: How to save upto ₹1 lakh on policies

Now you have the option to choose a greater sum assured at the same price. Rather than paying tax, you can invest the money in increasing your cover

Under the new GST 2.0 regime, the government has slashed the Goods and Services Tax (GST) on term insurance premiums from 18% to 0%, effective September 22, 2025.

 

For years, this 18% tax had inflated term insurance premiums, discouraging many Indians from buying life protection plans. The latest reform changes that — making term insurance more affordable and accessible than ever before.

 

What Is Term Insurance?

 

Term insurance is the simplest and most affordable form of life insurance. You pay a fixed premium for a chosen period (the policy term), and in the unfortunate event of your death during that period, your family receives the sum assured — a lump-sum payout.

 

If you survive the term, the policy ends without any payout. Because it provides “pure protection” and not investment returns, the premiums are typically lower than other life insurance products.

 

What Has Changed Under GST 2.0

 

Previously, when you purchased a term plan, you had to pay 18% GST on top of the premium.

 

For instance, if your annual premium was ₹10,000, you ended up paying ₹11,800 after tax.

 

Now, with 0% GST, the same plan costs you just ₹10,000 — a direct saving of ₹1,800 per year.

 

This makes a significant difference, especially for middle-income families who often weigh every rupee before committing to long-term financial products.

 

Why This Change Matters

 

Removing GST from term insurance isn’t just a tax tweak — it’s a behavioral nudge that could reshape how Indians view life protection.

 

Here’s why it’s important:

 

Lower premium cost: Term plans are now up to 18% cheaper instantly.

 

Improved accessibility: More individuals and families can afford essential life coverage.

 

Increased financial security: As affordability improves, insurance penetration is likely to rise, helping protect more households from income shocks.

 

How Much You Can Save

 

Let’s look at some examples:

 

If your annual premium is ₹15,000, you previously paid an extra ₹2,700 as GST. Now, with the tax removed, you save that ₹2,700 every year — which adds up to ₹54,000 in savings over 20 years.

 

If your annual premium is ₹30,000, you earlier paid ₹5,400 in GST. Under the new rule, you save this entire amount each year — leading to ₹1,08,000 in total savings over 20 years.

 

These savings are not just numbers — they represent money you can now redirect toward other important financial goals, such as:

 

Building your retirement fund

 

Investing in your child’s education

 

Creating a medical or emergency reserve 

Who Is Eligible for the 0% GST Benefit?

 

The GST exemption applies only to individual term insurance policies. This means if you buy a new term plan or renew an existing one after September 22, 2025, your premiums will be completely GST-free.

 

However, group insurance covers, employer-sponsored term plans, and corporate life insurance policies do not qualify for this benefit. These remain outside the scope of the GST 2.0 exemption, as the reform is aimed specifically at encouraging individual financial protection and increasing retail insurance adoption.

 

What You Should Do Now

 

If you don’t have a term plan yet: Now is the best time to buy one. With 0% GST, the entry cost is lower, and younger age means lower base premiums.

 

If you already have a plan: You’ll benefit from reduced renewal costs. You can also consider increasing your cover, given the new affordability.  With inputs from Agencies