In a landmark move, the Indian government has removed GST from life and health insurance premiums, making coverage more affordable and boosting economic participation. Previously, insurance premiums carried 18% GST, adding to the cost for policyholders. Now, with zero GST, buying insurance has become significantly cheaper.

1. A Step in GST Reform

This change is part of the larger GST reform, which merged the 12% and 5% slabs and reduced the 28% slab to 18%. But for insurance, the GST has been completely removed—a first in the sector. Experts say this signals the government’s intention to make insurance more accessible to the masses.

2. Cheaper Premiums for Policyholders

Removing GST directly reduces the cost of life and health insurance premiums. Middle-income families and senior citizens stand to benefit the most. With lower premiums, more people can afford policies such as:

· Term life insurance

· Unit-linked insurance plans (ULIP)

· Endowment policies

Balachander Sekhar, CEO of RenewBuy, noted that this move will particularly encourage first-time buyers to invest in life and health insurance.

3. More people Covered, Greater Financial Security

With reduced costs, the number of policyholders is expected to rise, leading to higher insurance penetration in India. This means more people will be financially protected, especially against life uncertainties and health emergencies.

4. Boost for the Healthcare Sector

Jitin Makkar from ICRA highlighted that the healthcare industry will benefit as well. With more patients covered by insurance, affordable hospital treatments will become accessible to a larger population. Over time, this supports the government’s goal of inclusive and accessible healthcare.

5. Short-Term Challenges for Insurers

While policyholders benefit immediately, insurers may data-face short-term challenges:

· No input tax credit (ITC): Companies will lose the GST-related credit on their business expenses.

· Potential profit impact: Reduced ITC could temporarily lower profit margins.

However, industry experts believe that the long-term gains from higher sales and greater coverage will offset these challenges. Increased customer base and higher penetration are likely to improve revenue over time.

6. Economic Implications

The GST removal is expected to have positive ripple effects:

· More people buying insurance strengthens financial stability across households.

· Greater insurance penetration supports economic resilience by reducing out-of-pocket medical expenses.

· health and life insurance growth can stimulate investment and employment opportunities in the insurance sector.

7. Final Takeaway

Removing GST on life and health insurance is a win-win for both buyers and the economy. Policyholders enjoy lower premiums, and more people are encouraged to secure financial protection. While insurers data-face short-term adjustments, long-term benefits are expected to outweigh the initial impact, creating a more inclusive insurance ecosystem in India.

 

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