Zero GST on health insurance: What it means for your premium and your pocket
The cost of buying health and life insurance in India has quietly come down, and for many families, the change is already being felt in their monthly budgets.
From September 22, individual health and life insurance policies have become free from Goods and Services Tax, removing the 18% tax that policyholders were paying earlier.
The move, cleared by the GST Council in September and announced by Finance Minister Nirmala Sitharaman, came into effect from the first day of Navratri, offering relief at a time when healthcare costs continue to rise sharply.
For years, insurance buyers had flagged the high tax burden on protection products, arguing that insurance was a safety net and not a luxury. With zero GST now applied to individual policies, the premium payable by customers has reduced directly, without any change in coverage or benefits.
WHAT ZERO GST MEANS FOR POLICYHOLDERS
Explaining the impact, Sumit Bajaj, Director at Choice Insurance Broking, said the decision brings immediate savings for customers buying retail health and life insurance policies.
“The GST Council recently announced that all individual health and life insurance policies will be fully exempt from GST from 22 September 2025. This means that up to 18% tax that customers were paying on retail health and life covers will no longer exist, bringing in a direct 15–18% reduction in premiums for the customers,” Bajaj said.
He added that the exemption does not apply to group insurance policies offered by employers, meaning employees covered under corporate health plans will not see a change in premiums due to this move.
WHY THE TIMING MATTERS FOR INDIAN FAMILIES
According to Bajaj, the decision could not have come at a better time. Medical inflation in India has been running much higher than general inflation, making health insurance renewals more expensive every year.
“The move will to some extent ease the burden on the middle class and encourage more Indians to purchase insurance covers. The timing appears to be perfect, especially when health care costs in the country continue to rise far faster than general inflation,” he said.
Lower premiums are expected to attract first-time buyers who were earlier hesitant due to high costs. Senior citizens and families with higher sum insured policies, who often pay large annual premiums, are also likely to benefit meaningfully.
THE HIDDEN COST INSURERS NOW FACE
While the relief for customers is clear, Bajaj pointed out that insurers are facing a different challenge behind the scenes. Earlier, insurance companies could claim Input Tax Credit on GST paid for expenses such as commissions, marketing, and operations. With GST removed from individual policies, that benefit disappears.
“While the policyholder no longer pays GST, insurers now face a different challenge. Earlier, they could claim Input Tax Credit on GST paid towards commissions, marketing, and other operational expenses. With GST removed from individual health and life policies, insurers lose this credit completely,” Bajaj explained.
He said this GST paid on internal expenses now becomes a direct cost for insurers, estimated at around 5–7%.
