GST Free Health And Life Insurance

With health issues and medical costs on the rise, health insurance is the way to go to secure your physical and financial health. However, high premiums often deter individuals from investing in health insurance.

The 56th Goods and Services Tax (GST) meeting, effective September 22, 2025, brings a slew of changes and relief from burgeoning costs and inflation. The revised structure will now comprise of - 5% and 18% and 40% for 'sin' goods, replacing the previous four-tier system. It has also made sweeping changes in the healthcare sector.

• Health insurance (individual health covers, family floaters, and senior citizen plans) and life insurance policies (term, ULIP, endowment), earlier taxed at 18%, are now fully exempt under GST 2.0.
• Taxes on many medicines and pharmaceuticals have been dropped from 12% to 5%.
• The tax burden on medical devices, like diagnostic kits, surgical gloves, and blood glucose meters, has been reduced to 5% from as high as 18%.

In the Indian healthcare system, out-of-pocket expenses account for nearly two-thirds of total healthcare costs.

With more affordable healthcare expenses, individuals, especially senior citizens and those with small businesses, are more likely to opt for insurance coverage. This game-changing update affects both your wallets and renewal strategy, especially if you are considering ABHI products that offer 100% health returns.

What's changing: 18% savings of tax on new and renewed policies

As of today, insurance premiums attract 18% GST and Insurance Companies are allowed to avail Input Tax Credit on its procurements. The new GST rate is proposed to be 0%, however, Insurance Companies will not be eligible to avail ITC. The aforesaid GST rate change is proposed to come into effect on September 22, 2025.

With no GST applied, there is a direct reduction in how much you pay.

For instance, on a health insurance policy with the base premium being ₹10,000, you used to pay ₹11,800 (premium + 18% GST). Under the new outflow, you just have to pay the base premium (₹10,000), and benefit from an instant ₹1,800 saving.

Premium Savings Comparison Table

• Insurers will lose the ability to claim ITC with GST exemption leading to higher costs to the insurers

Life insurance policies carry level premiums that are fixed at the time of buying the policy, which cannot be changed later. While existing policyholders can benefit from the tax exemption, new policyholders might see increased premiums depending on the insurers' decision of absorbing or passing on the ITC loss.

If insurance riders (critical illness, personal accident) can also benefit when insurance gets cheaper, they can be billed as part of individual health or life policies under the updated classification.

The exemption benefit will only reflect when it is passed on to the consumers. These measures strengthen the risk pool and improve the long-term resilience of the insurance sector.

Should I renew health insurance after the GST change?

• Renewal or purchase due after September 22 - In this case policies purchased / renewed after 22nd September is not chargeable to GST
• Renewal due before September 22 - Don't delay just for tax savings. Continuous coverage is more important than timing for a small extra cost. Renew your policy to avoid unexpected medical bills.
• No refund on GST paid on renewals before September 22 - Only premiums paid and policy issued on or after September 22 will receive a 0% GST benefit. GST paid on advanced premiums cannot be refunded as well.

5-Point action plan for you

• Check policy renewal dates - Note when your health and life insurance policies are up for renewal.
• Check insurance paperwork - Take an action once insurers show nil GST on quotes/premiums. If not, wait for a few days until the systems are updated.
• Ensure the policyholder is the primary beneficiary of this exemption, not the company.

Join ABHI's reward-based plans and take charge of both your and your family's well-being and finances without facing a pocket pinch.