New GST rates came into effect on September 22nd, the first day of Navratri, bringing significant relief to those with health and life insurance policies.
The government has implemented GST reforms in the country, and starting today, September 22nd, people have received significant relief on a wide range of goods and services. While everything from milk, ghee, and oil to TVs, ACs, and cars and bikes has become cheaper, the GST on life and health insurance has been reduced to zero. Yes, these are now tax-free, which will impact policyholders’ premium payments, reducing their monthly premiums. Let’s calculate how much savings will result from monthly insurance premium payments of ₹10,000 and ₹30,000.
The tax was 18%, now it’s ‘zero’
Under the Next Generation GST reform, new GST rates have been implemented on essential goods and services. The previously applicable 12% and 28% slabs have been eliminated, and the items included in these have been placed in the 5% and 18% slabs. Regarding the GST on insurance, it has now been reduced to zero. The government has given this significant gift to policyholders, fulfilling a long-standing demand. Until now, the GST on life and health insurance premiums was only levied at the rate of 18%.
This is the first and full reduction in the tax on insurance premiums since the government implemented GST on July 1, 2017, abolishing all taxes. This change has also been implemented on all personal ULIP plans, family floater plans, senior citizen plans, and term plans.
Calculating Savings on Premium Payments
Now let’s explain how much you save on your insurance premium payments. The calculation is very simple. If your policy’s monthly base premium was ₹30,000, then you would have had to pay ₹35,400, adding ₹5,400 monthly at the rate of 18% GST. But now, with zero GST, you won’t have to pay the additional tax on the premium, and only the base premium will have to be paid. If someone’s premium is ₹10,000, they will save ₹1,800.
Talking about term insurance, it has also become much cheaper than before. Suppose you purchased a term insurance policy worth ₹1 crore at the age of 30, your annual premium would have been around ₹15,000. Let’s calculate the savings on this…
Base Premium – Rs 15,000
18% GST – Rs 2,700
Total Premium – Rs 17,700
But now that the government has exempted it from GST and placed it in the zero GST category, the policyholder will be reduced from the additional 18% tax burden of Rs 2,700 and will only have to spend Rs 15,000.
How much savings will be made on floater health insurance?
If someone takes out family floater health insurance, they will also save a significant amount of money, as GST has been reduced from 18% to zero. Suppose you are 35 years old, your wife is 33 years old, and you have two children. The average annual premium for a ₹10 lakh cover for the entire family is ₹25,000. 18% GST used to be levied on it, which was ₹4,500, meaning a total of ₹29,500. Now, since GST will be removed, a direct savings of ₹4,500 will be achieved.
What about insurance companies’ ITC now?
While the government has provided significant relief to policyholders by excluding insurance premiums from the scope of GST, it has also clarified its stance on insurance companies’ ITC, or input tax credit. Recently, the Central Board of Indirect Taxes and Customs announced that insurance companies will no longer be able to claim input tax credit on GST paid for health and life insurance, including commissions and brokerage, starting September 22nd. The key question is how companies will compensate for this.
Insurance companies used to collect GST on base premiums from customers, and they also pay GST on marketing and office rent, among other things, and remit these expenses to the government after adjusting them against the tax collected on premiums. Now, companies will no longer be able to claim these expenses. Following this government move, insurance companies will have to bear the burden of increased input costs. Consequently, there are speculations that companies may add additional costs to their base premiums, burdening customers.
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