Indian households burdened by rising insurance costs may soon catch a break. The government is reportedly considering a Goods and Services Tax (GST) reduction on life and health insurance premiums, a move that could lower the cost of critical financial protection for millions of Indians.
The proposal is expected to be discussed in the upcoming GST Council meeting, and if approved, could offer meaningful relief, especially to middle-class families and salaried individuals who often find premium rates unaffordable.
Current GST Burden
Under the current tax structure:
18% GST is levied on health insurance premiums
18% GST is also applicable on term life insurance policies
3.75% to 4.5% GST is charged on the premium component of ULIPs (Unit-Linked Insurance Plans)
This adds a significant tax layer to already rising insurance costs, especially in a post-COVID era where demand for health coverage has surged.
“Insurance is a social security instrument. Taxing it at par with luxury services never made sense,” said CA Manish Mishra, a Delhi-based tax advisor.
What’s Likely to Change
Sources indicate that the GST Council may consider:
Lowering GST on term insurance and health insurance from 18% to 12% or possibly 5%
Rationalizing GST rates across non-investment insurance products
Offering relief especially to first-time buyers and rural policyholders
While nothing is finalized yet, Finance Ministry officials have acknowledged internal discussions are underway.
Why It Matters Now
This potential move comes at a time when:
Insurance penetration in India is still low (3.2% in life, 1% in health)
Households are increasingly exposed to healthcare inflation and medical uncertainty
The government is aiming to boost financial inclusion and social security adoption
By reducing GST, insurers believe more individuals—especially younger people—might be encouraged to opt into term or health insurance plans earlier in life.
Industry Reaction
The insurance industry has long been lobbying for such a move.
“Lower GST will not just help policyholders, but also allow insurers to widen their base,” said Manoj Kumar Singh, an advisor in the health and insurance sector.
“It’s a win-win for the economy if more people are covered.”
What Consumers Should Do
While the cut is not yet implemented, this news should prompt people to:
Evaluate their existing insurance coverage
Consider buying a term plan or health insurance before premiums rise further
Stay tuned to official announcements from the GST Council
If implemented, existing policyholders may benefit from reduced renewal premiums, while new buyers will find it easier to afford basic protection.
Conclusion
The potential GST reduction on insurance premiums signals a much-needed policy shift towards affordability and access in India’s insurance landscape. For millions of citizens juggling medical costs and uncertain income flows, this could be a small change with a big impact.
All eyes are now on the next GST Council meeting, which could bring policyholders a timely financial breather.
