A major tax reform could soon change the way Indians pay for life and health insurance. The Group of Ministers on GST rate rationalisation has given its approval to exempt insurance premiums from the Goods and Services Tax. The recommendation now moves to the GST Council, which is expected to meet in September to take a final decision. If cleared, this change will arrive as a festive season relief, coinciding with the government’s larger push for next generation GST reforms.
Prime Minister Narendra Modi had earlier hinted at a sweeping tax restructuring in his Independence Day speech, calling it a Diwali gift for the people. Soon after, the government released details of its plan to simplify GST into a two tier system. Under the new structure, most items will be taxed at either five percent or eighteen percent, effectively scrapping the current twelve percent and twenty eight percent slabs.
The most anticipated part of this reform is the possible removal of GST from life and health insurance. At present, premiums attract eighteen percent tax, significantly raising costs for policyholders. If the Council approves the proposal, premiums will become cheaper overnight, making financial protection more accessible to middle class families, senior citizens, and first time buyers.
The stakes are high, given the large sums involved. In the last financial year, over eight thousand crore rupees were collected by the Centre and states through GST on health insurance premiums alone. Another fourteen hundred crore rupees came from reinsurance premiums. Exempting these categories from GST will mean a direct hit to government revenue, but the expectation is that greater insurance penetration will balance the impact over time.
Industry experts and insurance leaders have welcomed the move. Deepak Kumar Jain, founder and CEO of TaxManager, explained that exempting GST would immediately cut premiums by eighteen percent. According to him, this reduction would improve affordability, boost insurance penetration, and ultimately strengthen financial security for millions of households.
Jude Gomes, MD and CEO of Ageas Federal Life Insurance, echoed the sentiment, saying the change would make protection products accessible to a much wider section of the population. He also described it as a customer centric reform that supports the long term vision of Insurance for All by 2047.
The reform is not only about affordability. It also signals a structural shift towards simplifying the tax system. With just two main rates, the new GST structure promises to reduce complexity, improve compliance, and streamline revenue collection. For consumers, this means clearer bills and lower costs on essential items, from home appliances to automobiles. For the insurance sector, it means stronger demand and a larger role in ensuring financial inclusion across both urban and rural India.
The final decision will rest with the GST Council when it convenes next month. If the exemption is approved, it could become one of the most impactful tax changes in recent years, delivering real savings to households and reshaping the financial landscape.
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