GST Reforms 2025: Why Your Life Insurance Premiums Are Now Tax-Free

The new GST reforms come as a highly appreciated boon for India’s middle class. These reforms add multiple new exemptions to the GST rate table, reducing the overall tax burden faced by everyday customers. Moreover, even health and life insurance plans will be subject to these new changes. This will greatly reduce the cost of life insurance plans, allowing new policyholders to secure their loved ones without having to stain their finances.

2025 GST Reforms for the Life Insurance Sector
 

 

The primary change pertaining to life insurance is that your premiums payments will now be completely GST free! The previous tax rate for term life insurance premiums was 18%.

Let’s assume that you buy a term life insurance plan for a monthly premium of ₹100. For term plans, the previous GST rate was 18%. So, you would have had to pay an additional tax charge of ₹18, bringing up your total monthly expenditure to ₹118. Adding up your premium expenses for the year, the total premium charges you would have to pay would amount to ₹1416, meaning that you would be paying a total yearly GST of ₹216.

Now you only pay the base premium amount as mentioned in your policy document, without having to pay additional charges for GST! Meaning that under the GST reforms for 2025, your annual premium payment would only amount to ₹1200, saving you the ₹216 that you had to pay as tax.

2025 GST Rate Tables for Life Insurance 

Below is a list of life insurance products that will benefit from the new 2025 GST reforms.

Insurance Category	Existing	Revised
Term Insurance	18%	0%
Riders	18%	0%
Traditional Savings	4.5%	0%
ULIPs	18% on Charges	0%
Retail Annuity Plans	4.5% (Regular Pay) 1.8% (Single Pay)	0%

 

Note that these changes will only be applicable for policies that have been issued after September 22, 2025.

Policies issued before the revision date will still have to pay the applicable GST. Hence, this change mostly benefits new policyholders or potential customers who want to secure their loved ones in the future.

GST Reform Impact on Life Insurance Renewals

Life insurance plans that are active or have been renewed before September 22, 2025, will still have to pay the applicable GST charges. However, if you have an inactive policy, and renew it post the due date, then your premium charges will be GST free! So, the best strategy right now would be to wait until the reforms go live before you renew any of your insurance plans.

Other Key Takeaways from GST Reforms 2025

Besides providing tax exemptions for life insurance premiums, the new GST reforms also have some other key takeaways that every Indian taxpayer needs to be aware of. Some of the main pointers for the announcement include:

• GST on health insurance premiums has also been removed. Prior to the reforms, 18% GST was applicable for all health insurance premium payments.
• The new GST rates have been simplified to just two slabs- 5% and 18%.
• GST for numerous medicines and pharmaceuticals has also been reduced from 12% to 5%. Certain lifesaving drugs have also been completely exempted from GST.
• GST for some vehicles such as small cars and two-wheelers has been reduced to 18% from the original 28%.
• GST for certain household appliances such as air-conditioners and TVs has been reduced to 18%. Moreover, the GST on basic household accessories (like soaps or toothpaste) has been reduced to 5%, or even completely removed in some cases.
• GST has increased to 40% for luxury goods, tobacco, and certain drinks.

Conclusion

The primary goal of these GST reforms is to reduce the tax burden on the middle class, provide fairer tax brackets, and simplify the slabs for consumer convenience. These changes are expected to improve the ease of doing business, while also reducing the day-to-day expenditure for basic goods & services. Additionally, insurance providers are expecting an increase in policy issuance post September 22nd. The removal of GST charges will incentivize people to buying life insurance policies, not only as a means to protect their loved ones, but also as a way to increase their savings.

Unit-linked insurance plans (ULIPs) and term insurance plans will become far more appealing post the removal of 18% GST charges. Overall, the changes are a great boon to the insurance sector, and those who wish to financially protect their loved ones should consider issuing a life insurance policy as soon as the changes come into effect.

 

Chirag Iyer - BFSI Enthusiast

Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.