GST on Insurance Premiums in India: Rates, Rules, and Impact Explained

Key takeaways

• Insurance premiums in India are taxed under GST because insurance is treated as a service.
• The standard GST rate on most insurance policies is 18%, replacing the earlier 15% service tax.
• GST 2.0, effective September 22, 2025, exempts individual life and health insurance from GST entirely, reducing the rate from 18% to 0% for these policyholders.
• Motor insurance and group insurance (both life and health) continue to attract GST at 18%, with no reduction under GST 2.0.
• The GST exemption applies to both new policies and renewals for individual life and health plans falling due on or after September 22, 2025, with no refund for premiums paid before this date.
• Government-backed schemes such as PMJJBY, PMSBY, and IRDAI-approved micro-insurance products (up to ₹2 lakh sum assured) remain fully exempt from GST.
• Employers purchasing group insurance for employees can claim Input Tax Credit (ITC) on premiums, but ITC is no longer available to insurers for costs linked to exempt individual life and health segments.
• Always verify whether your policy is individual or group and confirm the applicable GST rate with your insurer at the time of purchase or renewal, as the rate directly affects your total premium outgo.

Introduction

Insurance is often seen as a financial safety net, but the cost of premiums is influenced by taxes as well. One key component affecting premiums today is the Goods and Services Tax (GST).

Before GST was introduced in July 2017, insurance premiums were subject to service tax at 15%. GST replaced this system and brought insurance under a unified tax structure, typically at 18%.

What is GST on Insurance Premiums?

GST on insurance premiums is the tax charged on the service provided by insurance companies. Since insurance involves risk coverage, administration, and financial services, it falls under taxable services.

Why insurance premiums are taxed under GST

Insurance is classified as a service, not a financial investment alone. The premium you pay includes:

• Risk coverage
• Administrative costs
• Distribution and servicing

Because of this service component, GST is applied to the taxable portion of the premium.

How GST replaced earlier service tax on insurance

Many people wonder how insurance and GST on it has changed

Before GST, there was a service tax on insurance = 15%

After GST (from July 1, 2017):

GST on insurance premiums = 18%

This shift increased the tax burden slightly, especially for certain policy types.

GST Rates on Different Types of Insurance Policies

Different insurance products attract GST differently, some based on the full premium, others only on specific components. The table below provides a clear summary:

What do Insurance Premiums Include and How GST Is Calculated on Insurance Premiums?

Insurance premiums typically include:

• Risk premium (core coverage cost)
• Administrative charges
• Rider premiums
• Investment component (in ULIPs or traditional plans)

GST is applied depending on which components are taxable.

Example of GST calculation on insurance premium

Example 1: Term Insurance

Base premium: ₹10,000

GST at 18%: ₹1,800

Total premium: ₹11,800

Example 2: Endowment Plan

Total premium: ₹50,000

Effective GST (~4.5%): ₹2,250

Total payable: ₹52,250

GST Rules Applicable to Insurance Policies

The GST on insurance premium in India follows specific rules that govern when and how the tax applies. These rules ensure consistency across the insurance sector and prevent confusion. Understanding these rules helps policyholders know their tax obligations.

GST applicability for new and existing policies

GST on insurance took effect from July 1, 2017. All premiums falling due from that date, including on pre-existing policies, attract GST at the applicable rate. From September 22, 2025, individual life and health policy premiums are fully exempt (0%) under GST 2.0. Motor and group insurance remain taxable at 18%. There is no refund for premiums paid before the exemption date.

Tax treatment for policy renewals

Renewal premiums follow the same GST treatment as new policies. Individual life and health renewals due on or after September 22, 2025 attract 0% GST. Motor insurance renewals continue at 18%. Group policy renewals remain at 18% regardless of the insured being individuals. No concessional rate applies specifically to renewals.

GST rules for group insurance policies

Group insurance, purchased by employers for employees, attracts 18% GST on the total premium. This applies to both group life and group health plans. Employers registered under GST may claim Input Tax Credit (ITC) on premiums paid for business-purpose group cover. Employees under group plans receive no direct GST benefit on their personal returns.

Impact of GST on Insurance Policyholders

Not every policyholder has felt GST the same way. Individual life and health buyers now enjoy full relief under GST 2.0, while motor and group insurance customers continue to pay 18%. Where you sit in that divide determines how significantly GST affects your annual insurance outgo.

Increase in insurance costs after GST

GST replaced service tax in 2017, raising the tax rate on most insurance products from 15% to 18%. For a ₹20,000 annual motor premium, this meant an additional ₹600 in tax per year. Motor and group policyholders continue to bear this increased cost, as no relief has been extended to those categories under GST 2.0.

Effect on long-term life insurance policies

Individual life insurance buyers now benefit from the GST 2.0 exemption (0% from September 22, 2025). For policies renewed before this date, cumulative GST over long tenures was significant. Going forward, the removal of 18% GST directly lowers the cost of owning term, endowment, ULIP, and annuity policies for individual policyholders.

Impact on health insurance affordability

The 0% GST on health insurance premium, effective September 22, 2025, meaningfully improves affordability, especially for senior citizens and self-employed individuals who were earlier paying 18% GST on the full premium. Group health plans remain at 18%. Motor insurance sees no change. Overall, GST 2.0 reduces the cost burden for individual buyers while leaving commercial and group buyers unchanged.

Input Tax Credit for Insurance Companies

Like any registered business, insurance companies pay GST on their operational costs. The GST framework allows them to reclaim a portion of this through Input Tax Credit, but the rules on what qualifies, and for which business segments, are specific and worth understanding.

What is input tax credit in GST

Input Tax Credit (ITC) allows GST-registered businesses to offset the GST paid on inputs against the GST collected on output services. For insurers, this means GST paid on operational expenses, software, office rent, professional fees can reduce their net GST liability on taxable policies like motor and group insurance.

How insurers claim ITC on business expenses

Insurers can claim ITC on eligible business inputs such as IT systems and software, office premises rent, legal and audit fees, and marketing services. ITC is blocked on certain items, including personal-use motor vehicles and food expenses, under GST rules. Since individual life and health are now GST-exempt (0%), ITC on costs attributable to those segments is no longer available to insurers.

Impact of ITC on insurance pricing

ITC availability helps reduce insurers’ operational costs on taxable products (motor, group insurance), which may support competitive pricing. However, this benefit is not guaranteed to be passed on to policyholders. Premium pricing depends on actuarial data, loss ratios, and regulatory frameworks, ITC is just one input in that calculus.

Situations where GST may not apply

Some situations can change how GST is applied. For example, a No Claim Bonus (NCB) lowers your premium, so GST is charged on the reduced amount, not the original price. In co-insurance cases, the lead insurer usually handles GST. Reinsurance deals between insurers follow different GST rules than regular customer policies.

Conclusion

GST 2.0 marks a meaningful shift in how insurance is taxed in India. Individual life and health policyholders now pay 0% GST, a direct cost saving compared to the 18% that applied until September 2025. Motor insurance and group policies remain at 18%, unchanged.

As a policyholder, the key takeaway is straightforward: check whether your policy is individual or group, and whether it falls under the exempt or taxable category. Always compare premiums on a GST-inclusive basis and verify the applicable rate with your insurer at the time of purchase or renewal