Exemption of GST on Individual Life & Health Insurance: Impact on New vs. Existing Policies

New Delhi [India], October 8: The Central Government’s announcement exempting GST on insurance premiums from September 22, 2025, has sparked widespread interest. For many, this reform is expected to make both individual life and health insurance more affordable by lowering premium costs. But how this change plays out — especially for new policy buyers versus existing policyholders — depends on a few key factors.

Let’s explore how this development could impact different policyholders, what you should expect, and why the savings may vary.

How the GST Reform Changes Premium Dynamics

Up to September 21, 2025, insurance premiums attracted 18% GST, which was added directly to what policyholders pay. From September 22, 2025, GST has been exempted on individual life and health insurance, making premiums appear lighter.

For someone paying ₹10,000 as the base premium, this earlier meant ₹11,800 with GST. Post-reform, the total payable amount is expected to drop closer to the base premium, creating relief for customers.

This shift could play out differently for new buyers and existing policyholders, shaping the way premiums are calculated going forward.

Impact on New Policies

For new customers entering the insurance market after September 22, 2025, premiums are expected to look simpler and more competitive. Without GST inflating the cost, policies would appear more attractive at the entry stage.

• Lower upfront cost – New buyers see a direct reduction compared to earlier quotes.

• Simplified pricing – No need to calculate GST on premiums, making it easier to compare products.

• Boost in adoption – Lower costs may encourage more households to take their first step into insurance.

Impact on Existing Policies

For existing policyholders, the effect will depend on whether they are paying regular premiums or have already paid a single premium upfront.

• Regular premium policies – Future instalments post September 22, 2025, are to be billed without GST, meaning reduced outflow from upcoming due dates.

• Single premium policies – If premiums were already paid upfront with GST, these may not benefit from retrospective changes, as past GST can’t be refunded.

• Renewals – Policies renewing after September 22, 2025, may enjoy lower payable amounts, offering relief for long-term holders.

This means ongoing policies will still gain, though the degree of benefit depends on the premium payment mode.

Why Savings May Differ and What Really Decides the Reduction

While this reform is encouraging, it’s important to note that the actual premium cut may not match the full 18% GST component. The reason lies in how insurers currently manage taxes.

Until now, with 18% GST on insurance premiums, insurers were able to claim Input Tax Credit (ITC) paid on expenses such as distribution, administration, and services. This effectively reduced their overall tax liability, meaning the full 18% GST incurred on the expenses was not passed on to customers.

Now, since individual life and health insurance have been exempted under GST, ITC can no longer be claimed by the insurance companies on the expenses incurred to provide such services. Accordingly, the overall reduction may not equal the full 18% GST component.

So, while premiums are certain to come down, the exact savings you see will depend on how your insurer adjusts post-reform.

What This Means for Policyholders

For both new and existing customers, exemption of GST on individual health and life insurance is a positive change. It means lower recurring costs, simpler premium structures, and potentially wider adoption of insurance as a tool for financial security.

Final Word

The exemption of GST from September 22, 2025, marks a significant shift for insurance buyers. Whether you’re considering a new policy or already hold one, this change should translate into reduced outflows and greater affordability.

While the exact benefit may vary due to ineligibility of ITC on expenses incurred, one thing is clear — insurance is set to become more cost-effective, making financial protection more accessible to households across India.

Disclaimer: T&C Apply – Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third-party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Co. Limited, Star Health & Allied Insurance Co. Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited, Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite registration number CA0101.

Please note that BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of independent due diligence on the suitability and viability of any insurance product. Any decision to purchase an insurance product is solely at your own risk and responsibility, and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly.

Please refer to the insurer’s website for Policy Wordings. For more details on risk factors, terms and conditions, and exclusions, please read the product sales brochure carefully before concluding a sale.

URN No. BFL/Advt./24-25/850

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