How much you may save on life and health insurance premiums now that GST is gone

In a major relief for life insurance and health insurance policyholders, the Goods and Services Tax (GST) Council on September 3 decided to exempt all individual insurance premiums from tax.

The revised rates will take effect from September 22, the first day of Navratri, Finance Minister Nirmala Sitharaman announced after the 56th Council meeting.

The policies covered under the exemption recommended on life insurance are all individual life insurance policies including term, ULIP, and endowment plans and reinsurance services thereof.

Currently, insurance services attract 18% GST. For instance, a policyholder with an annual premium of  ₹ 40,000 paid an extra  ₹ 7,200 in tax, taking the total amount to  ₹ 47,200. So, starting September 22, no more tax payment, and a ₹ 40,000 premium will cost that only.

However, you should not expect a full 18% discount after the removal of GST on insurance.

No GST on insurance will also remove the Input Tax Credit that insurers have been claiming under the existing GST regime. This means their cost burden will rise, which in turn will lead to a hike in insurance premiums.

Yet, customers will be able to save more in the new GST regime as the expected insurance premium hike is 3-5% for health insurance and up to 1-2% on life insurance. But there will be no GST of 18%, resulting in more savings in the new GST regime compared to the existing regime.

The 56th meeting of the GST Council was held in New Delhi under the chairpersonship of Finance Minister Nirmala Sitharaman.

The GST Council inter-alia made the recommendations relating to changes in GST tax rates, provide relief to individuals, common man, aspirational middle class and measures

The healthcare sector also sees major relief, with 33 essential life-saving medicines now exempt from GST.