GST Rates on Term Insurance

The Indian government has reduced GST on term insurance from 18% to 0%, effective September 22, 2025. This makes term insurance more affordable and easier to access, especially for individuals seeking pure protection plans without extra tax* costs. With this reform, families will be able to maintain financial security by reducing the cost associated with essential life insurance coverage.

What is term insurance?

A term life insurance policy provides your family with financial assistance in the event of the untimely death of the policyholder. It is an affordable and straightforward policy. The plan is designed for protection and does not offer any savings or investment opportunities.
 

With the new 0% GST rate on term insurance, a cover of up to one crore could cost less, making it an even more affordable safety net for families.

Different types of term insurance plans

Term insurance policies in India come in several types, each catering to different needs. All individual term insurance types now have a 0% GST rate. However, group term insurance policies continue to be subject to the 18% GST under the GST rate reforms.
 

• Level term insurance: In level term insurance, the coverage amount remains the same throughout the policy period. This ensures your family receives a fixed and predictable level of protection.

• Increasing term insurance: In this plan, the coverage amount increases every year to match inflation and rising expenses. Premiums may stay the same or increase slightly while offering higher protection over time.

• Decreasing term insurance: The coverage amount of this type of term insurance reduces gradually over the policy period. It is commonly linked to outstanding loans or mortgages and suits individuals repaying debts.

• Convertible term insurance: Term insurance can be converted into a whole life or endowment plan in the future with this plan. A medical test is not required for this.

• Return of premium term insurance: Upon surviving the policy term, you will receive a refund of your premiums. It offers both protection and savings, making it an attractive option for cautious planners.

What is GST on term insurance premiums?

The GST on term insurance premiums is an indirect tax* imposed on the premiums paid for term insurance coverage. 
 

• Taxes on individual term insurance plans were 18% until 22 September 2025, so a 10,000 premium would attract an additional 1,800 GST, making it 11,800.

• Term insurance premiums are now GST-free, making term plans more affordable and encouraging more people to opt for pure protection insurance. 

• The reform is part of a government effort to increase financial security. A term plan calculator can help you determine how GST reductions affect your premiums.

• Before September 22, 2025, GST rates on term insurance were at 18% on individual term insurance.

• The GST was removed from individual term insurance on September 22, 2025.

• There is still a GST of 18% applicable to group term insurance.

• The new term life insurance GST laws are expected to increase sales and broaden coverage.

Benefits of the New GST Changes on Term Insurance

New GST reforms have improved transparency and affordability in term insurance. Key benefits include:
 

• Individual Term Plans with Reduced Premiums

  The new GST rate on individual term plans lowers premiums. The 18% GST that applied to term plans until 22 September 2025 has been eliminated.
   

  For example, a term insurance policy with an annual premium of Rs. 15,000 earlier cost Rs. 17,700 (Rs. 15,000 + 18% GST).
   

  Under the new GST reform, policyholders now pay only Rs. 15,000, saving Rs. 2,700 annually.

• Increasing Insurance Accessibility and Financial Inclusion

  Increased affordability has encouraged low- and middle-income households to opt for term insurance. What was once considered optional is now widely viewed as a financial necessity.
   

  A recent report suggests that the GST reform has increased term insurance adoption by 2.5 times nationwide. Higher affordability has also led first-time policyholders to choose higher sums assured.

• Optional Riders Are Now More Affordable

  Additional riders can now be added to term insurance policies without incurring GST. Previously, riders worth Rs. 5,500 attracted 18% GST, increasing the total cost.
   

  With the 0% GST reform, riders such as critical illness, accidental death, and waiver-of-premium are now significantly more affordable.

• Simpler Tax Treatment and Transparent Premium Structure

  Removing GST has simplified premium breakdowns, making it easier for policyholders to understand and compare term insurance plans.
   

  Greater transparency reduces hidden charges and helps build trust between insurers and policyholders, particularly for first-time buyers.

GST rates before and after reform for term insurance

The GST reforms on life insurance, effective from 22 September 2025, reduce the cost of term insurance for individuals. The table below shows the change in GST rates.
 

With GST removed, individual term insurance becomes more affordable. Group term insurance remains unchanged. This move aims to increase insurance coverage among individuals.

Why GST was removed from term insurance premiums

The government removed the 18% GST on individual term insurance premiums effective 22 September, 2025 for the following reasons.
 

• Boost insurance penetration
  Insurance coverage in India still remains quite low. Lower premiums are expected to encourage more people to buy term insurance.

• Make insurance more affordable
  Removing GST reduces premium costs and makes life insurance accessible to families across different income groups.

• Ease financial pressure
  With rising living expenses due to inflation, eliminating the tax* burden helps reduce financial stress on policyholders.

• Promote financial inclusion and social security
  Lower insurance costs support wider financial protection and strengthen long-term security for households.
   

Example to understand the impact

Assume an individual term insurance policy with an annual premium of ₹30,000:

Before 22 September 2025:
GST at 18% added ₹5,400, increasing the total payable amount to ₹35,400.

After the reform:
With GST reduced to 0%, you pay only ₹30,000, saving ₹5,400 every year.

Over a 20-year policy term, this results in total savings of ₹1,08,000, highlighting the long-term benefit of the GST reforms on term insurance.

How GST reforms affect policyholders

GST reforms on term insurance directly benefit policyholders and reduce costs. Since 22 September 2025, policyholders do not need to pay 18% GST on their individual term insurance premiums; they only have to pay the base premium, which makes protection plans affordable. As living costs rise, this reduces financial pressure and allows individuals to allocate savings to other goals. Long-term savings may encourage more individuals to get adequate life insurance and enhance the financial safety of their families.

Current GST vs upcoming GST reform on term insurance premiums

The comparison below shows that the GST reform reduces costs for individual policyholders while keeping the tax* structure for group term insurance unchanged.
 

Conclusion

GST reduction on individual term insurance from 18% to 0% is a positive step for policyholders. This decreases premium costs, making life insurance more affordable than before. The reform encourages more people to buy term insurance and secure financial protection. It also promotes transparency by removing tax-related cost confusion. While group term insurance still attracts 18% GST, individual buyers benefit the most from this change. Over time, lower premiums are expected to increase insurance adoption and strengthen financial security. This reform supports wider coverage and promotes long-term financial stability across households in India.