In a landmark decision, Finance Minister Nirmala Sitharaman announced that the 18% Goods and Services Tax (GST) on health and life insurance premiums has been reduced to zero. The announcement was made after the GST Council meeting, which approved the change with full consensus from all states.
Simplified GST Structure
The council also decided to rationalise GST slabs from the current four-tier system—5%, 12%, 18%, and 28%—to just two rates: 5% and 18%. A special 40% slab will remain for luxury items such as high-end cars, tobacco, and cigarettes. The move aims to simplify compliance and create a more transparent taxation framework.
Impact On Insurance Premiums
With GST removed, health and life insurance premiums are set to become more affordable. According to estimates, premiums may fall by around 15%, encouraging more households to opt for coverage. This could strengthen financial security and expand insurance penetration across India. However, insurers may see short-term pressure, with combined ratios in retail health impacted by 3–6% due to slower repricing of renewals.
Revenue Implications For The Government
The government collected nearly ₹16,400 crore from GST on insurance in FY24—₹8,135 crore from life insurance, ₹8,263 crore from health, and ₹2,045 crore from reinsurance. Waiving GST could lead to a revenue shortfall of USD 1.2–1.4 billion annually, according to HSBC. Despite this, the Centre believes the relief for citizens outweighs the fiscal hit.
Boost To Healthcare Access
Besides insurance, GST rates on medical essentials such as thermometers, oxygen, diagnostic kits, glucometers, test strips, and corrective spectacles have been slashed to 5%. This is expected to ease the burden on patients, reduce out-of-pocket expenses, and support the healthcare ecosystem.
Looking Ahead
This decision reflects the government’s intent to strengthen financial inclusion and healthcare affordability. By reducing premiums and lowering healthcare costs, more families may be able to access essential protection and care. For insurers, the focus will be on managing margins during the transition while leveraging the long-term growth in policy demand.
