The government is actively considering the removal of Goods and Services Tax (GST) on insurance premiums, a move that could significantly improve penetration in one of India’s most under-served sectors. Insurance coverage in India remains among the lowest globally, and high taxation has long been flagged as a deterrent for middle-class families and small businesses.
By scrapping GST, policymakers aim to make insurance more affordable, encourage higher uptake, and support broader financial inclusion. Industry experts believe this step could mark a turning point for life, health, and general insurance adoption, aligning with India’s long-term goals of building a resilient and inclusive financial ecosystem.
The Case for Removing GST
Insurance is widely recognized as a financial necessity, yet penetration in India lags behind global peers. One major obstacle has been the 18% GST applied on premiums, which inflates costs for individuals and small enterprises.
Removing GST would make products such as life insurance, health covers, and motor insurance more accessible.
It would also align with the government’s vision of expanding social security and financial safety nets.
Industry and Consumer Impact
The insurance industry has long advocated for a tax break, arguing that GST disincentivizes first-time buyers. If implemented, the measure could trigger a sharp increase in policy purchases and renewals.
Lower premiums could attract millions of uninsured households into the formal system.
Small and medium enterprises (SMEs) would benefit from reduced costs of mandatory business covers.
Boost to Insurance Penetration
India’s insurance penetration is around 4.2% of GDP, well below the global average. Removing GST could be a catalyst for change.
Greater affordability will encourage long-term savings via life insurance.
Health insurance adoption could rise substantially, especially post-pandemic where medical costs remain a key household concern.
Fiscal and Policy Considerations
While the move could mean short-term revenue loss for the exchequer, policymakers see it as an investment in long-term stability. Higher penetration translates into broader risk pooling, lower out-of-pocket expenditure, and reduced fiscal burden on public welfare schemes.
Expected revenue shortfall could be offset by higher compliance and policy growth.
The proposal aligns with the government’s agenda of financial inclusion and universal coverage.
Why This Matters
Eliminating GST on insurance premiums could be a landmark reform for India’s financial services sector, balancing social welfare goals with market growth.
Affordability: Makes insurance accessible for millions of households.
Penetration Growth: Could significantly raise India’s insurance coverage levels.
Economic Security: Strengthens safety nets, reducing reliance on state subsidies.
Industry Boost: Expands customer base, unlocking growth for insurers.
Policy Alignment: Reinforces India’s focus on inclusion and resilience.
