MC EXPLAINER GST on insurance: Policyholders have a lot to know post GST 2.0, here's why

The primary reason is to increase insurance penetration in India, which remains low compared to global standards, at 3.7 percent. High GST on premiums has often been cited as a deterrent for middle-income families. Reducing or removing GST is expected to make policies more affordable and encourage people to buy adequate coverage, aligning with the government’s goal of ‘Insurance For All by 2047.’

When will policyholders start benefiting from the GST cut?

The benefit of the GST cut will apply from September 22, which is the effective date notified by the government following the GST Council’s decision. Until that date, the current GST rate will continue to apply. If you purchase a new policy after the effective date, your premium will be lower as GST will either be reduced zero percent. Similarly, if you are paying a renewal premium after the effective date, the revised GST rate will reflect in your payment. However, premiums paid before the effective date will not be adjusted, as such tax changes are generally applied prospectively and not retrospectively.

Will policyholders who prepaid for multiple years such as a 5-year premium get a refund for the GST already paid?

No, in most cases, policyholders will not receive any refund for GST already paid on advance or single-premium policies. The reason is that taxes collected earlier were in line with the law at that time, and tax changes are generally applied prospectively, not retrospectively. Unless the government issues a specific directive allowing refunds, the GST already charged cannot be reclaimed. For example, if you have paid a lump-sum premium covering 5 years and the amount included GST, that payment remains valid under the old rules. There will be no adjustment, reimbursement, or reduction for the remaining years, even though GST rates are changing. Essentially, the benefit will only apply to future premium payments made after the new rules take effect.

Will my current policy features or benefits change because of this GST cut?

Your policy terms and benefits will remain exactly the same. The GST cut only affects the tax component of your premium, not the policy structure, coverage, or features. If you have a regular premium policy, any instalment due after the effective date will be lower because of the reduced GST. However, if you have already paid a single premium or made a full payment in advance, there will be no change for you. In short, the GST revision does not impact your sum assured, riders, or claim settlement process, only the tax you pay on future premiums.

Does this GST cut apply to all types of insurance policies?

The exact scope of the GST cut will depend on the details specified in the government’s notification. Under the new rule, life and health insurance policies for individuals have been exempted from GST, making them more affordable for policyholders. This exemption covers popular categories such as term insurance, endowment plans, and individual health insurance policies. However, not all products fall under this exemption. For example, group insurance policies, which are typically offered by employers or associations, will continue to attract 18 percent GST. Similarly, for ULIPs (Unit Linked Insurance Plans), GST is still applicable on charges such as allocation and administration fees unless specifically notified otherwise. Meanwhile, certain micro-insurance products and government health schemes already enjoyed lower GST rates, such as 12 percent or even 5 percent, and those benefits will continue. The detailed notification will clarify whether any additional categories or exceptions apply under the revised framework.

What happens to policies that are auto-debited monthly?

If your policy is on monthly ECS or auto-debit, the reduced GST will automatically reflect in future debits after the effective date. The insurer will adjust the amount for upcoming instalments based on the new rate.