Insurance GST cut to zero: Save ₹2,700 annually on ₹15,000 premium

Zero GST Impact on Insurance: From October, GST on individual health and life insurance premiums drops from 18% to 0%; insurers weigh impact of lost input tax credit

Just ahead of Diwali, Indians have been handed some relief. The 56th Goods and Services Tax (GST) Council meeting, chaired by finance minister Nirmala Sitharaman, has decided to slash GST on individual health and life insurance premiums from a hefty 18 per cent to zero.

 

This means someone paying ₹15,000 annually for a health or life insurance policy will no longer need to shell out an additional ₹2,700 as tax. If insurers pass on the benefit, the total cost could drop back to just the base premium.

 

How much can you save after Zero GST?

 

“A base premium of about ₹15,000 previously carried 18 per cent GST, which added roughly ₹2,700 and raised the total cost to nearly ₹17,700. With GST now removed, this extra charge goes away. If insurers pass the savings to customers, it means around ₹2,700 less to pay each year—adding up to nearly ₹27,000 over ten years,” said Adhil Shetty, CEO of BankBazaar.com.

 

 

Is insurance now more affordable?

 

“The reduced tax burden makes insurance more affordable and accessible. Lower premiums will encourage more people to stay protected with adequate cover, while existing policyholders benefit from significant annual savings,” said Siddharth Singhal, head of health insurance at Policybazaar.

 

Insurers, too, have welcomed the move.

 

“The GST relief on health insurance is a landmark step that will make protection more affordable and accessible for millions of Indians. In the long run, this measure will help bring new customers, especially the missing middle, into the health insurance ecosystem,” said Amit Ganorkar, managing director and CEO at TATA AIG General Insurance.

 

“In a country where out-of-pocket healthcare expenses remain high, wider adoption of health insurance is critical to ensuring families are not financially derailed by medical emergencies. This reform also signals a strong intent to move towards ‘health insurance for all’ and to build a culture of financial preparedness around healthcare,” Ganorkar added.

 

Anand Roy, managing director at Star Health and Allied Insurance, said, “This is a significant step that will build greater trust in the system and support the sector’s long-term growth. From a business perspective, it strengthens the foundation for continued expansion and ensures a more sustainable future for the industry.”

 

Insurers may worry about input tax credit

 

While policyholders stand to gain, insurers could feel a pinch.

 

Until now, insurance companies collected 18 per cent GST from customers but also paid GST on various operational expenses. These include:

 

Agent commissions

Outsourced call centres

Office rent

Logistics and courier services

Software and admin tools

 

Here’s how input tax credit (ITC) worked:

 

If the insurer collected ₹100 in GST but had already paid ₹30 on its own expenses, it only had to pay ₹70 to the government. That ₹30 was deducted as ITC.

 

This brought down the real GST burden to around 2.5 per cent to 5 per cent, depending on how much the insurer outsourced.

 

Now, with GST at zero for customers, insurers lose the ability to claim ITC—because they’re no longer collecting GST in the first place.

 

Can insurers recover this cost elsewhere?

 

"The decision to eliminate GST on insurance policies is a welcome move. However, insurance companies lose their input tax credit benefit, which previously allowed them to offset GST paid on operational expenses such as office rent and commissions. Without input credit tax, their effective operating costs will increase," said Shilpa Arora, co-founder and chief operating officer of Insurance Samadhan.

 

"Amid these changes, insurance companies may consider adjusting premiums or restructuring insurance products to recover higher operating expenses," Arora added.

 

Shetty pointed out that the industry may respond in more than one way. “In the short term, insurers may pass on part of the benefit to customers, especially in competitive areas like health insurance where affordability matters most. At the same time, some insurers could retain a portion to strengthen margins or invest in distribution,” he said.

 

“Over the longer run, with demand picking up and competition intensifying, the likelihood of customers seeing the full benefit increases. Either way, the overall direction is potentially positive—insurance becomes more affordable, and penetration is set to rise,” Shetty said.

 

What does it mean in real numbers After Zero GST on Premium?

 

The savings may not seem huge on paper, but they add up.

 

"Insurance in India is still not as common as it should be. Many families avoid buying enough cover, often due to cost or lack of awareness. But with hospital bills rising every year, insurance has become essential, not optional,” said Shetty.

 

“Take a simple example. If you bought a health policy for ₹20,000 a year, you earlier had to pay an extra ₹3,600 as GST. That’s gone now. If the benefit is passed on, you save ₹3,600 each year—or ₹36,000 over ten years. That money could help strengthen your emergency fund or even increase your insurance cover,” he said.

 

Beyond the math, he said the reduction can make people more open to considering insurance. “The biggest impact is on health and life insurance, where GST has been cut to zero from 18 per cent.”

 

"However, rising medical inflation, which is around 14 per cent, could limit the long-term benefits of the GST reduction. Nevertheless, consumers are unlikely to face major repercussions, at least in the short term," said Arora.

 

How should families budget now?

 

"Families should see the GST cut as a welcome relief, but not the only factor in their insurance decision. The recommended approach is to buy coverage after assessing your needs—how many family members need coverage, their age, and whether protection is required for critical illnesses,” said Shetty.

 

“For instance, a younger family of four may manage with a ₹10–15 lakh floater plan, while an older couple might need higher cover. The tax saving makes premiums lighter on the wallet, but budgeting should still be based on adequate protection, not just lower costs,” he added.

 

“You can use the extra saving to increase your sum insured or add useful riders like maternity or accident cover. The goal should be to ensure your family has the right shield against rising hospital bills. Affordability has improved, but the priority should remain getting the right cover for your needs,” said Shetty.

 

Can insurers raise premiums later?

 

Yes—but only within limits set by regulations.

 

"Yes, insurers can increase the base premium to adapt to the increased operational cost, but not arbitrarily or mid-term. Any revision to the base premium must occur at policy renewal and comply with underwriting norms," said Arora.

 

"It is important to note that insurance premium increases are governed by the Irdai Insurance Product Regulations (2024) and the Health Insurance Master Circular. Like I mentioned earlier, premiums can only be increased at the time of policy renewal," she said.