GST 2.0 explained: When will new GST rate for life, health insurance be applicable?

A major relief to health and life insurance policyholders was provided when the Goods and Services Tax (GST) Council stated on September 3, 2025, that all individual life and health insurance premiums would no longer be subject to GST. The announcement reduced GST on the premiums of these policies from 18% to zero. Finance Minister Nirmala Sitharaman made this announcement at the 56th Council meeting on September 3.

When will the changes in GST rates come into force?

The new GST rates will be applicable from September 22, 2025.

Which life insurance policies are GST exempt?

After the 56th Council meeting announcement, all individual life insurance policies, including term ULIP, endowment as well as reinsurance policies are exempt from GST.

GST on health and life insurance premiums reduced to zero: See how it will impact your policy costs

Which health insurance policies are included in the GST exemption list?

The policies covered under the GST exemption are all individual health insurance plans, including senior citizen and family floater plans, and reinsurance of such plans.

What are input tax credits (ITC), and why does it matter?

Insurers while selling insurance plans collect 18% GST from buyers. These insurers also pay GST to the government on a host of operational activities such as the agent commission, marketing, office rent, etc.

However, under the GST regime, insurers are allowed to adjust the tax they have paid on these activities against the tax they have collected from the policyholders, and pay the remaining difference to the government.

What will happen if GST is zero, but ITC is not available?

In this scenario, along with zero GST on insurance premiums, there will also be no ITC available for insurers. Ashwin Ghai, ex-director of LIC, says that no ITC could potentially mean that insurers pass on the lost ITC as an additional cost to the customers.

GST rate on medicines

The GST council has also cut rates on medicines and medical services.

As per the Finance Ministry, all drugs/medicines have been prescribed a concessional rate of GST of 5%, except those specified at a nil rate.

Are all medicines exempted from GST?

As per a press statement from the Ministry of Finance, if drugs/ medicines are fully exempted, the manufacturers/dealers would not be able to claim input tax credit on the GST paid on raw materials, and will have to reverse the ITC paid on the inputs. This would increase their effective tax incidence and the cost of production. This may, in turn, be passed on to consumers/ patients in the form of higher prices which, in turn, would make the measure counterproductive.

Does the 5% GST rate apply on all medical devices?

The Finance Ministry statement says that the rate of 5% applies on all medical devices, instruments, apparatus used in medical, surgical, dental and veterinary uses other than that are exempted specifically.

Why has the GST rate been reduced on medical devices?

The measure is intended to lower the cost of healthcare and thereby benefit patients, particularly the poor. This measure does not create any new inverted duty structure as the existing structure already had inverted duty structure although this measure may deepen the inversion. However, under GST, a refund of accumulated input tax credit arising on account of the inverted duty structure is available to manufacturers. The GST Council has also recommended process reforms to enable expedited refunds.