GST on insurance

What is GST on insurance?

GST on insurance is the goods and services tax that applies to insurance premiums in India, because the law treats insurance cover as a service supplied by the insurer. The insurer collects the tax from the policyholder along with the premium and pays it to the government. Until September 2025, almost all insurance attracted GST at 18%, with lower effective rates on some life savings products.

On the recommendation of the 56th meeting of the GST Council in September 2025, the government exempted individual life and individual health insurance from GST from 22 September 2025, through CBIC Notification No. 16/2025-Central Tax (Rate) of 17 September 2025. Reinsurance of those policies is also exempt. As of October 2026, group policies and general insurance such as motor, fire, property, marine and liability still carry GST at 18%.

How GST applies to insurance in India

The exemption depends on who is insured, not on the product label. The notification covers policies where the insured is an individual, or an individual with family members insured under the same contract, rather than a group. Where a product's classification is less obvious, for example individual personal accident or travel cover, the insurer's own treatment should be checked.

Input tax credit

An exempt service cannot carry input tax credit. Once individual life and health became exempt, insurers had to stop claiming, and reverse where required, the GST they pay on inputs used for those policies, such as advertising, technology and distribution services. The largest item is GST on commission and brokerage paid to agents, corporate agents and brokers, which CBIC confirmed would no longer be available as credit. That GST became a direct cost to insurers.

What GST on insurance means for distribution

• Cheaper premiums for customers. For an individual term or health policy, the 18% GST that used to be added on top of the premium fell away from 22 September 2025, so a ₹20,000 premium that cost ₹23,600 now costs ₹20,000, as long as the insurer did not raise the base premium. This is a strong renewal and new-business message for retail health and protection.
• Commission cuts followed. Because GST on commission became a cost, many life and health insurers reduced commission on individual policies, reported at about 18% for life insurers from 1 October 2025, and several health insurers cut payouts to distributors. Agency, bancassurance and broker economics on retail life and health changed overnight. Distribution leaders should review partner agreements and agent pay-outs against each insurer's revised commission policy, filed within the Expenses of Management limits.
• Group versus retail pricing gap. Group health and group term remain at 18%, so an individual policy is now 18% cheaper on tax alone. Some employees may prefer to top up with individual cover, and brokers selling employee benefits should expect clients to compare.
• Motor and commercial sales are unchanged. GST on motor, fire, marine and liability policies is still 18%, so any "insurance is now tax-free" message must be limited to individual life and health. Saying otherwise is mis-selling.
• Premium certificates and tax deductions. Since the deduction under section 80D and section 80C is based on premium paid, deductible amounts for the same cover are lower after the exemption. Certificates should show the GST line as nil.
• Multi-year and advance premiums need checking. Customers who paid a multi-year health premium or a renewal in advance before 22 September 2025 often ask whether they get the GST back. The answer depends on the GST time of supply rules and the insurer's position, so distributors should route these questions to the insurer rather than promise a refund.