GST Exemption on Health Insurance Premiums: Save 18% on Policies

Healthcare costs in India are rising every year, and health insurance has become a must-have for every family. But one big reason why many people avoid buying insurance is the high premium cost, which includes 18% GST (Goods and Services Tax).

In a big relief to millions of Indians, the GST Council, in its 56th meeting on 3rd September 2025, announced the complete removal of GST on individual health and life insurance premiums. This means, from 22nd September 2025, your insurance premium will become much cheaper.

Let’s break this down in simple terms and see how it benefits you.

What Has Changed?

Earlier, you had to pay 18% GST on health insurance premiums.
Example: If your base premium was ₹1,000, you paid ₹1,180 after adding GST.
Now, with GST removed, you will pay only the base premium of ₹1,000.
This rule applies to individual health insurance plans, including:
- Family floater policies
- Senior citizen health insurance
- Term and savings-based life insurance plans

If you already hold a policy, your renewal premiums after 22nd September 2025 will also be GST-free.

How Much Can You Save?

Let’s take an example:

Old system: Annual premium = ₹30,000 + ₹5,400 GST = ₹35,400
New system: Annual premium = ₹30,000 only

Direct saving of ₹5,400 every year.

This 18% reduction makes health insurance more affordable, especially for middle-class families and first-time buyers.

Key Benefits of GST Exemption

Lower Premiums – You save 18% directly on your policy cost.
Better Coverage – With lower costs, you can choose a higher coverage amount.
Encourages First-Time Buyers – People who found insurance expensive may now purchase it.
Boost to Savings Plans – In life insurance savings products (like ULIPs, endowment, guaranteed returns), your entire investment now gets invested instead of losing a part to GST.
Supports IRDAI’s Goal – The Insurance Regulator’s mission is Insurance for All by 2047, and this move takes us closer to that target.
Wider Reach – Affordable premiums will encourage more insurers to expand into rural and semi-urban areas.

But There’s a Catch

While it looks like a full 18% saving, the real benefit may be slightly lower. Why?

Earlier, insurers could claim Input Tax Credit (ITC) on their expenses like commissions, admin costs, and technology.
With GST exemption, insurers lose this ITC benefit, which may increase their costs.
To balance this, some insurers might slightly raise the base premium.

Example: Instead of ₹1,000 premium, they may charge ₹1,027. So, instead of a full 18% saving, you may save around 15–16%.

However, in competitive segments like term insurance, insurers may prefer to absorb the cost and keep premiums low to avoid losing customers. Either way, you still save.

Why This Reform Matters

Rising medical inflation – Healthcare costs are rising at double-digit rates every year. Insurance makes it easier to handle sudden medical expenses.
Better claim settlement – Lower premiums will attract younger, healthier buyers, balancing the risk pool and making claims more sustainable for insurers.
Encourages long-term savings – Life insurance savings plans will now give better maturity values since your full premium is invested.

Important Things to Remember

This benefit is only for individual policies.
Group insurance from your employer is not covered.
If you have already paid a long-term premium (say 3 years in advance), you will not get a refund of GST already paid.

10 Factors That Still Affect Your Premium

Even without GST, your premium amount depends on several factors:

Age – Older people pay higher premiums.
Medical History – Pre-existing conditions increase premium.
Lifestyle – Smoking, alcohol, and high BMI lead to higher costs.
Family Size – More members = higher premium.
Sum Insured – Higher coverage = higher premium.
Type of Plan – Family floater, individual, or with add-ons.
Policy Duration – Long-term plans may offer discounts.
Geographical Location – Premiums vary across cities and regions.
Claim History – Frequent past claims may raise premiums.
Insurer’s Pricing – Administrative and market factors affect final cost.

FAQs on GST Exemption in Health Insurance

Q1. When will GST-free insurance premiums start?
From 22nd September 2025, all new and renewal premiums will be GST-free.

Q2. Will existing policyholders benefit?
Yes. Future renewals after 22nd September will be cheaper, but GST already paid cannot be refunded.

Q3. Does this apply to group insurance policies?
No. The exemption is only for individual policies.

Q4. How much will I save?
Around 15–18%, depending on how insurers reprice their plans.Q5. Will my policy coverage change?
No. Only the premium cost reduces, benefits remain the same.

Conclusion

The removal of GST on health and life insurance premiums is a big win for policyholders. From 22nd September 2025, premiums will drop by nearly 18%, making insurance more affordable and encouraging more Indians to get protected.

While insurers may adjust base premiums slightly, the overall benefit to customers is positive and long-term. Lower costs, better accessibility, and higher savings mean this reform can transform India’s insurance landscape.

GST Exemption on Health Insurance Premiums from September 22, 2025 – What It Means for You