GST Exemption on Insurance Premiums: In a major decision, the Goods and Services Tax (GST) Council has completely removed GST on health and life insurance premiums. The move, announced in the 56th Council meeting chaired by Finance Minister Nirmala Sitharaman, will come into effect from September 22, 2025, the first day of Navratri.
Until now, both health and term insurance policies were taxed at 18% GST, making premiums significantly costlier for policyholders. With this exemption, insurance premiums are expected to drop by up to 15%, offering substantial savings to millions of families across the country.
However, this relief will come at a cost to the exchequer. The government may face a revenue loss of nearly $1.2 to $1.4 billion annually due to this exemption.
According to reports, while demand for insurance is expected to rise after the GST cut, insurers may face short-term challenges. An HSBC analysis suggests that insurance companies could see a 3–6% impact on their business. This is mainly because repricing older policies and renewals may take 12–18 months.
Additionally, how much of the benefit actually reaches customers will depend on the availability of Input Tax Credit (ITC) and expense ratios. Still, the overall market sentiment is positive, with experts predicting higher penetration of health and life insurance in India.
Alongside this landmark move, the Council has also approved a major overhaul of the GST structure. From now, only two main slabs will remain—5% and 18%.
Essential goods such as medicines, groceries, and household items will fall under the 5% slab.
Most other goods and services will be taxed at 18%.
Luxury products and so-called “sin goods” such as tobacco, soft drinks, high-end vehicles, and alcohol substitutes will attract a higher rate of 40%.
This restructuring eliminates the existing 12% and 28% slabs, making the system simpler and more consumer-friendly.
The Council also reduced GST on several everyday essentials, aiming to boost household consumption and provide relief to common citizens.
Cheaper now: Medicines, groceries, cement, butter, ghee, cheese, confectionery, toiletries, personal care items, diagnostic kits, footwear below ₹2,500, small cars, ACs, TVs, and renewable energy products like solar heaters.
Costlier now: Tobacco, pan masala, carbonated beverages, high-end motor cars, luxury goods, and imported items like yachts and firearms, which now fall under the 40% slab.
For example:
Premium food products such as chocolates, pasta, and confectionery drop from 18% to 5%.
Household items like shampoos, toothpaste, and soaps also move down to 5%.
Meanwhile, tobacco, soft drinks, and luxury cars face a steep hike, rising from 28% to 40%.
This is one of the biggest tax reforms since GST was introduced in 2017. The exemption on health and life insurance premiums directly reduces the financial burden on families, making policies more affordable.
At the same time, cheaper medicines, food items, and personal care products will help households cut monthly expenses. On the other hand, costlier sin goods and luxury items will balance the government’s revenue loss.
Experts believe this dual strategy—lower taxes on essentials and higher taxes on luxury consumption—will encourage people to spend more on healthcare, insurance, and daily needs, while discouraging non-essential indulgences.
✅ Bottom Line: From September 22, 2025, health and life insurance premiums will no longer attract GST. Families can expect savings of up to 15% on policies. Everyday essentials like medicines, food, and toiletries are also getting cheaper, while luxury goods and sin products will now cost more.
This festive season, the government’s big tax relief is expected to boost consumption, ease household budgets, and increase insurance penetration across India.
