18% GST on health, life insurance may be slashed; industry pins hopes on fresh reform

The life and non-life insurance industry is hopeful of relief on taxes after Prime Minister Narendra Modi signalled GST relaxations for households, farmers, the middle class, and MSMEs in his speech on Friday. At the centre of industry expectations is a possible reduction in the 18% GST currently levied on life and health insurance premiums.

Insurers have long argued that a lower rate would make insurance more affordable, deepen penetration, and help achieve the Insurance Regulatory and Development Authority of India’s (IRDAI) ambitious goal of “Insurance for All by 2047.” They have been pressing for a cut to 12% on health insurance premiums along with the benefit of input tax credit.

Data shared in Parliament underlines the growing importance of the segment. Revenue collected from GST on health and life insurance premiums rose sharply to Rs 16,398 crore in FY24 from just Rs 2,101 crore in FY20, according to Minister of State for Finance Pankaj Chaudhary.

Industry push

Executives across the sector say a tax cut could be transformative. Sharad Mathur, MD & CEO of Universal Sompo General Insurance, said that lower GST would not only ease household budgets but also strengthen social security by encouraging wider coverage.

Manish Kumar, Chairman and MD of Finkeda, called the move a potential “game-changer.” He argued that cutting GST to 5–12% would directly reduce premium costs at a time of rising medical inflation. “This will encourage first-time buyers, expand coverage in underpenetrated markets, and ultimately strengthen the risk pool for insurers,” he said. Kumar added that inclusion of pensions and ULIPs in the review would further aid long-term financial planning.

Shilpa Arora, COO & Co-founder of Insurance Samadhan, highlighted the strain from rising costs. “Health insurance premiums have risen by 20–25% for many policyholders in the past year, while term life insurance has also become costlier post-pandemic. An additional 18% GST makes these essential safety nets even less affordable,” she said, adding that health and term insurance should not be treated as luxury goods.

Penetration still low

Insurance penetration in India slipped to 3.7% in FY24 from 4% a year earlier. Non-life penetration has stagnated at 1%, while life insurance stood at 3%, marginally higher than 2.8% earlier. Affordability challenges, compounded by double-digit medical inflation, remain a key hurdle.

Road ahead

The GST Council is expected to take up the matter in its next meeting. Industry leaders believe that reducing or even exempting insurance premiums from GST could provide the push needed to improve penetration and expand protection.

Meanwhile, the Centre has separately proposed a major overhaul of the GST framework by scrapping the 12% and 28% slabs. Most items would be shifted to the 5% or 18% brackets, with only luxury and “sin” goods facing a higher levy of 40%.

If approved, both moves together could mark the biggest GST reset since 2017, easing costs for households while opening the door for faster growth in insurance coverage.