In what could be a major relief for the common man, the Indian government is considering removing Goods and Services Tax (GST) on life and health insurance premiums. Currently, these premiums attract 18% GST, but the government has proposed reducing it to zero or at least bringing it down to 5%. If implemented, this move could make insurance premiums significantly cheaper for middle-class families.
On August 20, the Group of Ministers (GoM) on insurance matters held a meeting, chaired by Bihar Deputy Chief Minister Samrat Choudhary. He informed that ministers from all states agreed in principle to either reduce or completely remove GST on life and health insurance premiums. Some states suggested partial reduction while others expressed concerns about potential revenue losses. The proposal will now be placed before the GST Council in September, where a final decision will be taken.
Prime Minister Narendra Modi had earlier announced in his Independence Day speech that key GST reforms would be implemented before Diwali. This means the changes, if approved, could come into effect by October or November, just in time for the festive season.
At present, GST has four slabs: 5%, 12%, 18%, and 28%. Health and life insurance fall under the 18% slab. The government is reportedly considering restructuring these slabs into two major categories—5% and 18%—while keeping harmful products like tobacco under a special 40% rate.
If GST is reduced to zero, the savings for policyholders could be substantial. For example, if a person like Rahul pays ₹15,000 annually for health insurance and ₹30,000 for life insurance, he currently ends up paying an additional ₹2,700 and ₹5,400 respectively in GST. This totals to ₹8,100 extra every year. With GST removed, Rahul’s premium would drop to ₹12,300 for health insurance and ₹24,600 for life insurance, resulting in significant annual savings. For the middle class, this is nothing short of a festive gift, as lower premiums would also encourage more people to purchase insurance policies.
However, challenges remain. Telangana Deputy Chief Minister Mallu Bhatti Vikram pointed out that zero GST could lead to a revenue loss of nearly ₹700 crore for the government. Insurance companies too are concerned. Their argument is that if GST is brought down to zero or even 5%, they will lose the benefit of Input Tax Credit (ITC), which currently allows them to offset taxes paid on office services and marketing expenses. Without ITC, insurers might increase premiums by 10–15% to cover losses, which would dilute the benefit of GST removal for policyholders.
The GoM will continue its discussions for two days, and the GST Council is expected to finalize its decision in September. If the government finds a way to balance ITC concerns while reducing GST, both insurers and customers could benefit. Some states have suggested a middle path of keeping GST at 5% instead of zero to minimize revenue loss while still providing some relief to policyholders.
Meanwhile, the stock market has already reacted positively to this development. On August 21, insurance companies saw a surge in their stock prices during early trade. SBI Life Insurance rose by 1.25% to trade at ₹1,880, HDFC Life gained 1% to trade at ₹803, and Bajaj Finserv advanced 1.20% to ₹1,981. Insurance stocks were among the top gainers on the Nifty 50 index, reflecting investor optimism that lower GST could boost demand for insurance products.
Overall, the government’s proposal, if implemented without premium hikes, could result in thousands of rupees in annual savings for policyholders. It remains to be seen how the final decision strikes a balance between consumer relief, government revenue, and insurer sustainability. But one thing is clear—the possibility of lower insurance premiums has already lifted both middle-class hopes and insurance stock prices.
Disclaimer:
This article is for informational purposes only and should not be considered as financial or investment advice. Readers are advised to consult with a qualified financial advisor or insurance expert before making any decisions related to insurance policies or investments. The stock market data and government policy updates mentioned are based on available information at the time of writing and may change in the future.
