Ramesh decided to finally buy a life insurance policy to secure his family’s future. The annual premium was ₹12,000. He thought it was a fair deal—until the final payment page showed a total of ₹14,160. Confused, he noticed an extra ₹2,160 added as 18 % GST. Ramesh laughed nervously, thinking, “This tax alone could’ve covered two weekend trips to Lonavala!” He paid it anyway, but the thought lingered.

What exactly is this GST on insurance, and why does it matter so much? For someone earning ₹30,000 a month, that ₹2,160 isn’t pocket change—it’s groceries for the week or a tuition instalment. Ramesh's experience is a common one, especially among salaried individuals who are suddenly faced with rising premium costs. And it’s not just life insurance, health plans, ULIPs, and annuities that attract GST, too. Let’s understand what GST on insurance means.

GST on Insurance – A Short Introduction:

Goods and Services Tax (GST) was introduced in India on 1st July 2017 as a comprehensive indirect tax to replace service tax, VAT, and other state-level levies. In the insurance sector, GST is charged on the premium amount paid by policyholders, and the rate is currently fixed at 18% for most insurance products.

Before GST, insurance attracted a 15% service tax. With the new regime, this increase to 18% directly raised the cost of premiums, impacting both individuals and families.

Take the case of Anita, who pays ₹25,000 annually for her family’s health insurance. With GST added at 18%, she pays an extra ₹4,500—bringing her total premium to ₹29,500. This difference is significant for salaried individuals like Anita. It could have been spent on groceries or school fees, which makes understanding GST on insurance all the more important.

GST Rates by Insurance Category:

GST rates vary depending on the type of insurance policy. The table below outlines the applicable GST on major categories of insurance:

Insurance Type	Premium Amount Basis	GST Rate
Term Life Insurance	Full annual premium	18%
Health Insurance	Full annual premium	18%
ULIPs (Unit-Linked Insurance Plans)	Premium component only	18%
Endowment Policies	1st year / subsequent years	4.5% / 2.25%
Single Premium Annuities	Lump sum premium	1.8%

Example: Rahul recently bought an endowment plan with a first-year premium of ₹50,000. For that year, he paid ₹2,250 as GST at 4.5%. From the second year, the GST was reduced to ₹1,125 at 2.25%. Although this structure eases the burden over time, it still adds up for long-term policyholders like Rahul.

HSN Codes for Insurance:

Insurance services are classified under specific HSN/SAC (Harmonised System of Nomenclature / Services Accounting Code) codes. These codes are essential for insurers and businesses to accurately file GST returns and claim input tax credits.

Read More – GST on LIC Premium

Here are the key HSN codes applicable to insurance services:

Insurance Type	HSN / SAC Code
Life Insurance	997134
Health Insurance	997133

Example: When Priya, a small business owner, filed her company’s GST returns, she had to include her company-provided health insurance under HSN 997133. This ensured she could account for the tax correctly and also claim an input tax credit (if eligible) on related services.

Types of Insurance & GST Applicability

Policy Type	Description	GST Applicability
Term Life	Pure risk cover	18% on premium
Health Insurance	Mediclaim/family floater	18% on premium
ULIP	Investment-linked with insurance cover	18% on premium
Endowment Policy	Savings-oriented life insurance	4.5% in 1st year; 2.25% after
Annuity (Single Premium)	Lump-sum retirement product	1.8% on premium

Example: Rahul recently purchased a ₹10 lakh term insurance policy with an annual premium of ₹18,000. Under the current GST rate of 18%, he paid an additional ₹3,240 in taxes, bringing his total outlay to ₹21,240. If the proposed reduced GST rate of 5% were implemented, Rahul would have paid only ₹900 as GST, saving ₹2,340 each year.

Impact of GST on the Insurance Industry:

a. Premium Cost Increase

Before GST, insurance attracted a service tax of 15%. After GST implementation, the rate increased to 18%, resulting in a roughly 3% increase in total premium costs. This change has made insurance less affordable for many.

Example: Meena, a schoolteacher from Nagpur, paid ₹25,000 for her health insurance in 2016. The service tax at that time was 15%, i.e., ₹3,750. In 2025, the same policy attracts 18% GST, costing her ₹4,500 in tax, a ₹750 jump. Over 10 years, this difference alone adds up to ₹7,500.

b. Policyholder Behaviour

Due to rising premium costs, many policyholders are either reducing cover amounts or delaying new policy purchases. For instance, a ₹3 lakh annual health insurance plan now carries an additional ₹54,000 over five years just in GST.

Also Read - What is General Insurance?

Example: Arvind, a self-employed designer, held a ₹3 lakh annual family health insurance policy. At 18% GST, he pays ₹54,000 in tax over five years. That’s money he could have invested in an SIP or used for emergency medical funds, making him question if the policy is worth renewing every year.

c. Industry Response & Policy Reform Proposals

The GST Council, along with IRDAI, is considering reducing GST to 5% (with ITC) on life and health policies.
There are discussions around exempting policies with cover under ₹5 lakh from GST.
However, insurers warn that full exemption could remove their eligibility to claim Input Tax Credit, which may lead to higher base premiums to compensate for operational costs.

Example: Shalini recently bought a ₹4 lakh term life policy for ₹12,000 annually. At 18% GST, she pays ₹2,160 in tax. If this category is exempted in the future or taxed at just 5%, her GST would fall to ₹600, saving her ₹1,560 annually. Over a 20-year policy, that’s ₹31,200 saved.

Input Tax Credit (ITC) on Insurance:

Under GST, insurers can claim ITC on business expenses such as software, office rent, or marketing. This helps them reduce their tax outgo. If insurance is made fully exempt from GST, insurers will no longer be eligible to claim ITC, thereby increasing their operational costs.

The preferred model under discussion is to reduce GST rates to 5% while continuing to allow ITC. This balances consumer affordability with insurer sustainability.

Example: A mid-sized insurer like “SecureCare Ltd” spends ₹10 crore yearly on admin and tech operations, incurring ₹1.8 crore in GST. With ITC, they can offset this ₹1.8 crore against GST collected. However, if insurance becomes exempt, the company loses this offset and may need to raise premiums by 5–7% to cover that gap.

Conclusion

Insurance GST has made sure that the tax is levied on everyone equally but has also raised the price for customers. Life and health insurance now have an 18% GST, which makes it harder to buy expensiveprotection policies. The industry is looking forward to changes in 2025, especially with the government planning lower rates and better taxcredit mechanisms. The aim is to find a balance, making insurance easily available while remaining profitable for insurers.

FAQs

What is the GST rate on term life insurance?
18% of the total premium amount.

Is GST applicable to health insurance premiums?
Yes, GST at 18% is charged.

Are there lower GST rates for traditional life insurance policies?
Yes, 4.5% for the first year, and 2.25% thereafter.

Can I claim GST paid on my insurance as a tax deduction?
No, individuals cannot claim ITC on personal insurance policies.

Are there any proposals to reduce GST on insurance?
Yes, a 5% GST rate with ITC is under consideration by the GST Council.