Exemption of GST on life insurance: How your premiums get cheaper from September 22

VMPL

New Delhi [India], October 1: Life insurance is one of the most important ways to secure your family's financial future. Upto September 21, 2025, every policyholder had to pay an extra 18% GST on premiums, making protection plans costlier than the base premium. That changes from September 22, 2025, when the Government's decision to exempt GST on individual life insurance premiums came into effect.

This means policyholders will now pay a lower premium amount than before, making insurance more affordable and encouraging more families to get covered. Whether you already have a policy or are planning to buy one, this is an important development for your financial planning.

What does exemption of GST on life insurance mean?

Previously, a policy with an annual premium of Rs. 50,000 would actually cost Rs. 59,000 after tax (Rs. 50,000 base value of premium Rs. 9,000 GST). From September 22, 2025 onwards, customers will only pay the premium amount itself, without additional tax.

This applies to different insurance categories, including:

-Term plans

-Health insurance policies

-Unit Linked Insurance Plans (ULIPs)

-Child and retirement plans

How much will you actually save?

The benefit is clearer when you compare premiums before and after the change.

Over the course of a long-term policy, these savings add up to a substantial amount, making insurance lighter on your pocket.

Why savings may differ and what really decides the reduction

The exemption of GST on life and health insurance premiums is indeed a relief. But before you expect your policy cost to drop by the entire 18% GST component, it's important to know that the reduction may vary depending on your insurer. This is because insurance companies will no longer be able to claim the benefit of Input Tax Credit (ITC) on its expenses.

Until now, insurers could claim the GST amount paid on their expenses, such as administrative costs and services used to run operations. This effectively reduced their overall tax liability, meaning full 18% GST incurred on the expenses were not passed on to customers.

The premium cuts after exemption of GST will certainly make policies more affordable, however, since insurers will no longer be able to claim ITC, the actual reduction you see will likely be lower than 18%. The exact benefit will depend on how your insurer adjusts pricing, their operational cost structures, and how much ITC they were utilising earlier.

Impact on different types of insurance

The exemption of GST on individual life and health insurance, does not affect just one category of policies -- it extends across different types of insurance products. Each type benefits in a slightly different way, depending on how the premiums are structured. Here's a closer look:

-Term life insurance - These are pure protection plans with no savings element. With premiums becoming lighter, more families can afford to secure high coverage at a lower cost, ensuring financial stability for loved ones.

-Health insurance - Healthcare expenses continue to rise, and medical insurance is often seen as an additional financial load. The exemption of GST makes health premiums more budget-friendly, encouraging more households to opt for adequate medical protection.

-ULIPs (Unit Linked Insurance Plans) - ULIP Plans combine investment with insurance, and their charges already include several components. The exemption of GST slightly lowers overall costs, improving their value as long-term wealth and protection instruments.

-Child and retirement plans - Policies designed for long-term goals like a child's education or retirement planning often require large, recurring premiums. Even a modest reduction in annual costs translates into meaningful savings over decades, making these plans easier to sustain.

Why this is a significant change

The exemption of GST is more than just a technical tax update -- it has far-reaching implications for insurance buyers. Let's break down the core advantages:

-Greater affordability - Insurance has often been viewed as an additional financial burden, especially for middle-class households. With premiums now reduced, more people can consider buying adequate protection for themselves and their families.

-Simpler pricing - One of the challenges with GST was that the premium displayed was not the actual amount payable. Customers always paid more after tax. The reform simplifies this process -- the premium shown in your policy document is now closer to the amount you actually pay, making costs transparent and easier to understand.

-Ongoing tax benefits - Even with exemption of GST, the popular tax benefits under Section 80C (deductions on premiums) and Section 10(10D) (tax-free maturity benefits) continue unchanged. This means you save twice: first on reduced premiums, and then on annual tax outgo.

Conclusion

The government's decision to exempt GST on individual life insurance premiums is a welcome relief for customers. While the final savings may not be the full 18% GST component due to ineligibility of ITC on expenses incurred, premiums will still be more affordable, straightforward, and easier to manage.

From September 22, 2025 onwards, life insurance costs come down, making this the right time to review your coverage and ensure your family's financial protection is in place.

Disclaimer: T&C Apply - Bajaj Finance Limited ('BFL') is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Co. Limited , Star Health & Allied Insurance Co. Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. URN No. BFL/Advt./24-25/851

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