Health and life insurance to get cheaper from Sept 22 as GST Council scraps 18% tax

Finance Minister Nirmala SItharaman

In a major relief for policyholders, the GST Council on Wednesday decided to exempt health and life insurance premiums from the levy of Goods and Services Tax (GST). Union Finance Minister Nirmala Sitharaman announced the decision late on Wednesday. She chaired the meeting with the Finance Ministers of all the states.

The exemption will come into effect on September 22, 2025, which coincides with the first day of Navratri.

Currently, health and term insurance products attract GST at 18 per cent. With the exemption, premiums are expected to become more affordable. According to estimates by HSBC Securities and Capital Markets (India), the move could reduce health insurance premiums by around 15 per cent, though expense ratios of insurers will determine the extent of benefit passed on to consumers.

However, the government could face a revenue shortfall of $1.2–1.4 billion annually due to the exemption, the HSBC report noted.

While lower premiums are expected to boost demand, insurance companies may see a 3–6 per cent impact on combined ratios (CR) in the retail health segment, mainly because repricing of renewals may take 12–18 months.

What did the Finance Minister say?

"Insurance services from 18% currently will go into two, three different categories. Exemption of GST on all individual life insurance policies, whether term life, ULIP, or endowment policies, and reinsurance thereof, to make insurance affordable for the common man and increase the insurance coverage in the country. Exemption of GST on all individual health insurance policies, including family floater policies and policies for senior citizens, and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country," the Finance Minister said.

Individual Health/Life Insurance Now GST Free!#NextGenGST pic.twitter.com/UCrGQgxkJ3

— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025

GST Council meeting

The 56th meeting of the Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, began on Wednesday and approved sweeping changes to the country’s indirect tax framework.

The council cleared the Centre’s proposal to streamline the GST structure into a dual slab of 5% and 18%, while marking a special 40% slab for sin and luxury goods. This overhaul is all set to replace the current four major slabs - 5%, 12%, 18%, and 28%, creating a simplified two-rate system.

Under the new framework, essential or “merit” goods will continue to be taxed at 5%, while most goods and services will fall under the 18% standard rate.

The council also approved tax cuts on a wide range of daily-use products, including groceries, medicines, cement, and small cars — a move aimed at easing household budgets and boosting consumption.

Meanwhile, all the sin and luxury goods such as tobacco, fizzy drinks as well as high-end vehicles will attract significantly higher levies under the newly created 40% taxslab.

Officials said the changes were designed to make the tax structure simpler and more transparent, while ensuring revenue neutrality through higher taxation of luxury consumption.