Why Does GST on Insurance Premiums Matter?

Insurance is no longer a luxury — it is a financial necessity for every Indian household and business. Whether you are paying premiums for a life insurance policy to secure your family’s future, a health insurance plan to cover rising medical costs, or a motor insurance policy to comply with the law, one question that inevitably arises is: How much GST am I paying on top of my insurance premium?

Since the Goods and Services Tax (GST) regime came into effect on 1st July 2017, insurance services have been taxable under GST. As of 2026, the GST rates on insurance premiums continue to have a significant bearing on the affordability and penetration of insurance in India. With the Insurance Regulatory and Development Authority of India (IRDAI) actively pushing for higher insurance penetration — and the Union Government exploring rationalisation of GST on certain categories — understanding the current GST treatment of insurance premiums is more important than ever.

In this comprehensive blog, CleverCoins — your trusted GST and Tax Consultancy partner from Mumbra, Thane — explains everything you need to know about GST on insurance premiums: applicable rates, exemptions, Input Tax Credit (ITC) eligibility, calculation methods, and the latest updates for 2026.

What is GST and How Does It Apply to Insurance Services?

The Goods and Services Tax is a comprehensive, multi-stage, destination-based tax levied on the supply of goods and services across India. Insurance services fall under the category of ‘services’ for GST purposes, and the tax is levied under the Finance Act.

Classification of Insurance Under GST

Under the GST framework, insurance services are classified under SAC (Services Accounting Code) 9971. The key sub-classifications relevant to Indian taxpayers are:

• SAC 997131 — Life insurance services including term plans, endowment plans, ULIPs, annuity plans
• SAC 997132 — Health/Medical insurance services
• SAC 997133 — Motor vehicle insurance services
• SAC 997134 — Marine, aviation, and other transport insurance
• SAC 997135 — Fire and general property insurance
• SAC 997136 — Miscellaneous general insurance services

Insurance companies (insurers) are registered under GST and are required to collect GST on premiums charged to policyholders. The GST is payable over and above the base insurance premium.

GST Rates on Different Types of Insurance Premiums — 2026

As of 2026, the following GST rates apply to various insurance products in India:

GST on Life Insurance Premiums — A Detailed Breakdown

Life insurance products are the most widely held financial products in India. GST treatment varies significantly across different types of life insurance products. Here is a detailed breakdown:

1. Term Life Insurance Plans

A term plan provides pure risk cover — there is no maturity or survival benefit. If the insured dies during the policy term, the nominee receives the sum assured; otherwise, the premiums are forfeited.

• GST Rate: 18% on the entire premium amount
• Example: If your annual term premium is ₹15,000, you pay GST of ₹2,700 (18%), bringing the total payable to ₹17,700.
• The full 18% GST applies because the premium is entirely towards risk cover with no savings component.

2. Traditional / Endowment Plans (Money-Back, Whole Life, Savings Plans)

These plans combine insurance coverage with a savings element. The GST treatment differs between the first year and renewal years:

Example: Mr. Rashid Khan from Mumbra pays ₹50,000 as the first-year premium on an LIC endowment plan. GST payable = 4.5% × ₹50,000 = ₹2,250. From second year, if the premium remains ₹50,000, GST = 2.25% × ₹50,000 = ₹1,125.

3. Unit Linked Insurance Plans (ULIPs)

ULIPs are market-linked insurance products that invest a portion of the premium in equity/debt funds and provide life cover.

• GST Rate: 18% on the entire ULIP premium (all charges including mortality, fund management, allocation)
• Unlike traditional plans, ULIPs do not enjoy a concessional GST rate.
• Example: ULIP annual premium of ₹1,00,000 — GST = ₹18,000; Total payable = ₹1,18,000

4. Single Premium Annuity Plans (Immediate & Deferred)

Annuity plans provide a regular income (pension) to the policyholder post-retirement. Single premium annuity plans have a concessional GST rate:

• GST Rate: 1.8% of the single premium amount
• Example: Single premium of ₹10,00,000 — GST = 1.8% × ₹10,00,000 = ₹18,000

5. Group Life Insurance (Employer-Employee)

Group life insurance policies taken by employers for their employees attract GST at 18% on the premium paid. The employer can typically claim ITC on this if it is used in the course of business (subject to conditions discussed below).

GST on Health Insurance Premiums — Everything You Need to Know

With healthcare costs rising at 10-15% annually in India, health insurance has become indispensable. However, at 18% GST, health insurance is among the most heavily taxed financial products — a fact that has been debated extensively at the GST Council level.

Individual Health Insurance Plans

• GST Rate: 18% on the total premium
• Example: Annual premium of ₹20,000 → GST = ₹3,600 → Total payable = ₹23,600
• Top-up and super top-up plans also attract 18% GST

Family Floater Health Insurance

• GST Rate: 18% on the family floater premium
• Example: Family floater premium of ₹35,000 for 4 members → GST = ₹6,300 → Total = ₹41,300

Senior Citizen Health Insurance Plans

Senior citizens (aged 60+) face the dual challenge of higher premiums and 18% GST. This has been a key concern raised by industry bodies like CII and FICCI:

• GST Rate: 18% — same as regular health insurance (no concessional rate as of 2026)
• Budget 2025 allowed an enhanced deduction under Section 80D for senior citizens — but GST payable still remains 18%

Group Health Insurance (Corporate / Employer)

• GST Rate: 18% on group health insurance premiums
• Employers can claim ITC on group health insurance premiums paid for employees — this is one of the FEW cases where ITC on health insurance is available (subject to mandatory obligation under any law)

Critical Illness and Top-Up Plans

• GST Rate: 18% on all standalone critical illness and top-up health insurance plans

GST on General Insurance Premiums

General insurance covers a wide range of risks: motor vehicles, property, marine cargo, fire, travel, and more. All general insurance products attract a uniform GST rate of 18%.

Motor Insurance (Private Car, Two-Wheeler, Commercial Vehicles)

• Third Party (TP) Insurance: 18% GST on TP premium
• Own Damage (OD) Insurance: 18% GST on OD premium
• Comprehensive Policy: 18% GST on the total premium
• Example: Car comprehensive policy premium = ₹25,000 → GST = ₹4,500 → Total = ₹29,500

Note: Third party motor insurance is mandatory under the Motor Vehicles Act, 1988. Non-compliance is a legal offence.

Fire Insurance (Property, Factory, Shop)

• GST Rate: 18% on fire insurance premiums
• Applicable on residential property, commercial property, industrial units, warehouses, and shops
• Example: Annual fire insurance premium for a factory = ₹80,000 → GST = ₹14,400 → Total = ₹94,400

Marine Cargo and Marine Hull Insurance

• GST Rate: 18% on marine insurance premiums
• Exporters of goods can claim refund of GST paid on marine cargo insurance as part of export refund mechanism

Travel Insurance

• Domestic travel insurance: 18% GST
• International travel insurance: 18% GST (on the India-portion premium charged by Indian insurer)

Home / Householder Insurance

• GST Rate: 18% on home insurance premiums
• Covers structure + contents against fire, theft, natural calamities

Input Tax Credit (ITC) on Insurance Premiums — Who Can Claim?

One of the most frequently asked questions by business owners and CAs is: Can I claim GST Input Tax Credit on the insurance premiums I pay? The answer depends on the nature of the insurance, the business type, and the specific provisions of Section 17(5) of the CGST Act, 2017.

The General Rule: ITC is Blocked on Insurance

Section 17(5)(d) of the CGST Act specifically blocks ITC on:

• Health insurance services (unless mandatory under any law for the employees)
• Life insurance services (personal policies)
• Travel insurance for non-business travel

This means most insurance premiums paid by individuals are NOT eligible for ITC.

Exceptions: When ITC IS Available on Insurance

GST Exemptions on Insurance Premiums

Not all insurance is taxable under GST. The following categories of insurance services are exempt from GST (NIL rated):

How to Calculate GST on Your Insurance Premium — With Examples

Understanding how GST is computed on your insurance premium is simple once you know the applicable rate. Here are practical examples covering different insurance types:

Example 1: Term Insurance

Example 2: Endowment Plan — First Year

Example 3: Health Insurance

Example 4: Comprehensive Motor Insurance

Is GST Paid on Insurance Premium Tax Deductible?

This is a critical question for taxpayers filing their Income Tax Return (ITR). Here is the answer as per current provisions:

Section 80C — Life Insurance Premium

Under Section 80C of the Income Tax Act, 1961, you can claim deduction on the life insurance premium paid (including GST). However, the deduction is restricted to 10% of the sum assured (or 15% for persons with disability). Maximum deduction under 80C is ₹1.5 lakh per annum.

• IMPORTANT: The entire amount paid (premium + GST) is eligible for 80C deduction, subject to the sum assured cap.

Section 80D — Health Insurance Premium

Under Section 80D, deduction is allowed on health insurance premium paid for self, spouse, children, and parents. As per Budget 2025 provisions (applicable for AY 2026-27):

The GST component of the health insurance premium is included within the overall deduction limit under Section 80D. There is no separate deduction for GST paid — it is part of the total premium eligible for deduction.

GST Compliance for Insurance Companies — What Insurers Must Do

While this section is primarily relevant for insurance professionals and finance teams of insurance companies, it provides context on how GST flows through the insurance ecosystem.

GST Registration

All insurance companies (Life, General, Health, Reinsurers) are mandatorily required to register under GST and obtain state-wise GSTINs for each state where they have offices or provide services.

GST Returns Filing

• GSTR-1: Monthly / Quarterly return of outward supplies (premiums collected)
• GSTR-3B: Monthly summary return for GST payment
• GSTR-9: Annual return
• GSTR-9C: Reconciliation statement (audit) — applicable for insurers above ₹5 crore aggregate turnover

Place of Supply Rules for Insurance

Under Section 12(13) of the IGST Act, the place of supply for insurance services is the location of the recipient. This means:

• If the policyholder is in Maharashtra → Maharashtra SGST + CGST is applicable (intra-state)
• If the policyholder is in one state but the insurer’s office is in another → IGST is applicable (inter-state)

TDS on Insurance Commission

Insurance agents/intermediaries must note: GST is also applicable on insurance commission/brokerage income, which attracts 18% GST on commission earned, subject to registration threshold.

Recent Updates, Notifications & Circulars on GST and Insurance — 2024-2026

GST Council’s 55th Meeting — December 2024

The 55th GST Council Meeting was a landmark meeting for the insurance sector. Key recommendations:

• Recommended exempting GST on term life insurance premiums for individual policyholders
• Recommended exempting GST on individual and family health insurance premiums up to ₹5 lakh sum insured
• Formation of a GoM (Group of Ministers) to work out implementation modalities
• As of 2026, formal notification of these changes is still awaited — the GoM’s report is being deliberated upon

CBIC Circular on Place of Supply for Cross-Border Insurance

CBIC has clarified through various circulars that insurance services exported to overseas clients qualify as zero-rated supplies, enabling Indian insurance companies to claim refund of input taxes.

Budget 2025-26 — Insurance Sector

Union Budget 2025-26 announced liberalisation of FDI in the insurance sector (100% FDI allowed), which may lead to new insurance products and potential renegotiation of premium structures. The GST framework, however, was not changed through the Finance Act, 2025.

Common Mistakes and Misconceptions About GST on Insurance

• Mistake 1: Assuming no GST on health insurance — 18% GST applies unless specifically exempted
• Mistake 2: Claiming ITC on personal motor insurance for a car used partly for personal travel — ITC on mixed-use vehicles is generally not allowed
• Mistake 3: Not including GST in the 80C/80D deduction calculation — the full amount paid (premium + GST) is considered
• Mistake 4: Treating group life insurance ITC as always blocked — ITC may be available if it is a mandatory benefit
• Mistake 5: Confusing ‘exempt’ insurance schemes with ‘nil-rated’ — both result in no GST payable, but ITC treatment differ

Frequently Asked Questions (FAQs)

Q1. Is GST applicable on renewal of health insurance?

Yes. GST at 18% is applicable on every renewal of health insurance premium, including renewal of top-up and super top-up plans.

Q2. Can an individual (non-business) claim ITC on GST paid on insurance?

No. ITC is only available to GST-registered businesses (taxable persons). Even for registered businesses, Section 17(5) blocks most insurance-related ITC except for specific categories.

Q3. Is GST applicable on insurance for two-wheelers?

Yes. GST at 18% is applicable on two-wheeler insurance premiums — both own damage and third-party components.

Q4. My company paid GST on group health insurance for employees. Can we claim ITC?

If the group health insurance is provided as a mandatory obligation under any law (e.g., under a government directive or mandatory employee benefit scheme), ITC may be claimed. If it is a voluntary benefit, ITC is blocked under Section 17(5). Consult a CA for a case-specific opinion.

Q5. Is there GST on insurance claims (settlement amounts)?

No. Insurance claim settlement amounts received by policyholders are NOT subject to GST. GST is levied only on the premium paid to the insurer, not on the claim proceeds.

Q6. Does GST apply on the insurer’s commission to agents?

Yes. Insurance agents and brokers are required to pay 18% GST on commission/brokerage income earned, if their aggregate turnover exceeds ₹20 lakh per annum (₹10 lakh in special category states).

Q7. What is the GST rate on reinsurance?

Reinsurance of taxable insurance services attracts the same rate of GST as the underlying insurance. Reinsurance of exempt insurance services (like government crop insurance schemes) is also exempt from GST.

Q8. Is there any GST exemption for senior citizens on health insurance?

As of 2026, there is no GST exemption specifically for senior citizen health insurance premiums. The 55th GST Council recommended exemption but it is yet to be formally notified. The Income Tax benefit under Section 80D (up to ₹50,000 for senior citizens) is a separate income tax deduction — it does not eliminate the GST payable

Impact of GST on Insurance Penetration in India

India’s insurance penetration stands at approximately 4% of GDP — significantly lower than the global average of 7%. The 18% GST on health insurance and term insurance has been widely cited as a barrier to insurance adoption, particularly in the middle-income segment.

• A health insurance premium of ₹30,000 becomes ₹35,400 with 18% GST — an additional ₹5,400 that many families find difficult to bear
• Industry estimates suggest that removing GST from health insurance could increase health insurance penetration by 15-20%
• IRDAI has repeatedly requested the Finance Ministry to reconsider GST on health insurance as part of the ‘Insurance for All by 2047’ vision

CleverCoins believes that the formal notification of GST exemption on term life and health insurance — as recommended by the 55th GST Council — would be a transformative step for insurance penetration in India.

Conclusion: Navigating GST on Insurance — The CleverCoins Way

GST on insurance premiums is a multi-layered topic that touches every Indian — whether you are an individual securing your family’s future, a business protecting its assets, or an HR professional managing employee benefits. The key takeaways from this comprehensive guide are:

• Term insurance and health insurance attract 18% GST — the highest rate in the insurance category
• Endowment plans enjoy concessional GST rates of 4.5% (year 1) and 2.25% (renewal years)
• Most individuals cannot claim ITC on insurance premiums; businesses can in limited circumstances
• Government-sponsored insurance schemes like PMJJBY and PMSBY are GST-exempt
• The GST paid on life (80C) and health (80D) insurance premiums is included in the overall deduction amounts — understand this while filing your ITR
• The 55th GST Council’s recommendation to exempt term life and health insurance from GST is still pending formal notification as of 2026

For personalised advice on GST on your insurance premiums, ITC eligibility for your business, or GST filing support, reach out to CleverCoins — your trusted CA-led tax consultancy firm serving clients across Mumbra, Thane, and the entire Mumbai Metropolitan Region.