GST On Health And Term Insurance May Be Cut To 5% Or Scrapped, Says Report

The Indian government is reportedly considering a significant relief measure for consumers by either scrapping the Goods and Services Tax (GST) on health and term insurance completely or slashing it from the current 18% to 5%. According to sources, this tax reform could make insurance policies more affordable and improve insurance penetration across the country.

What the Proposal Means

If GST on health and term insurance is fully abolished, insurance companies may lose the ability to claim input tax credit (ITC). This could increase their operating costs, potentially offsetting some of the consumer benefits. Despite this, the reduction in tax would substantially lower the premiums for policyholders.

Impact on Policyholders

Currently, health and term insurance premiums attract 18% GST in India. For example, a senior citizen paying ₹50,000 annually for health insurance incurs an additional ₹9,000 or more in GST. A reduction or complete removal of the tax would cut down these costs, encouraging more people to buy insurance. The move has already received backing from the Insurance Regulatory and Development Authority of India (IRDAI).

A Part of Wider GST Reforms

Prime Minister Narendra Modi, during his Independence Day speech, hinted at “the next generation of Goods and Services Tax (GST) reforms”, which may be announced as a Diwali gift for citizens. Reports suggest that reducing GST on insurance is among the key measures under active consideration, although it could lead to an estimated annual revenue loss of around ₹17,000 crore for the government.

Economists and brokerages believe these reforms could also help soften inflation, reduce fiscal pressure in the near term, and even increase the likelihood of a repo rate cut by the Reserve Bank of India (RBI) as early as October.

Government’s Long-Term Plan

The Finance Ministry, in a statement issued after the PM’s address, said the Centre aims to "essentially move towards simple tax" with two slabs “standard and merit” while keeping special rates only for select items. Proposals on GST rate rationalisation and structural reforms have already been sent to the Group of Ministers (GoM) constituted by the GST Council.