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

Currently, insurance services attract 18% GST. Which meant that until now, buying or renewing a life or health insurance policy included paying an additional 18% GST on the premium. To illustrate this, imagine that currently, your base premium is ₹200. But the final amount you pay after adding 18 per cent GST would be ₹236. This means the tax alone adds ₹36 to the cost of the policy. With GST now reduced to zero, the total payable will simply be the base premium, making insurance more affordable for individuals and families.

This change would apply to all individual life insurance policies — including term life, Unit Linked Insurance Plan (ULIPs) and endowment plans — as well as their reinsurance. The exemption also extends to all individual health insurance policies, including family floater and senior citizen plans, along with their reinsurance. This move will make insurance more affordable for the common man and help expand coverage across the country, Sitharaman said.

Describing the decision as a structural reform rather than a mere rationalisation of rates, Sitharaman said, “Not just GST rate rationalisation, this is structural reform, easing compliance.” 

The government has collected Rs 16,398 crore from GST levied on healthcare and life insurance in FY24. Of this, Rs 8,135 crore came from life insurance and Rs 8,263 crore from health insurance. Additionally, Rs 2,045 crore was raised from reinsurance on life and health insurance last fiscal, including Rs 561 crore from reinsurance on life and Rs 1,484 crore on healthcare.

She added that the exemption is aimed at easing compliance and benefiting consumers and businesses alike. She also addressed previous concerns raised in Parliament, noting, “This was so much questioned last year. In parliament, Opposition members questioned, saying, ‘You want to tax insurance premiums?’ After a detailed study, taking stakeholders into confidence, we have come up with this so that families and also people who take individual insurance, get the benefit. Of course, we will make sure that companies pass on this benefit to people who are taking insurance. We want to give people who are looking to get medical insurance the relief.”

Hailing the decision, Prime Minister Narendra Modi stated, “Wide-ranging GST reforms will improve lives, ensure ease of doing business, especially small businesses.”

33 lifesaving drugs were also moved to 0% GST (from 12%). Three specific lifesaving medicines for cancer, rare, and chronic diseases shifted to 0% (from 5%). All other medicines reduced from 12% to 5%. Medical equipment such as diagnostic kits, blood glucose monitors, surgical devices, and bandages now taxed at 5%.

Thermometers, medical-grade oxygen, diagnostic kits, reagents, glucometers, test strips and corrective spectacles have also seen GST rates cut to 5 per cent, easing the burden on patients and healthcare providers.

While lower premiums are expected to boost demand, insurance companies could see a 3-6 per cent impact on combined ratios (CR) in the retail health segment, primarily due to slower repricing of renewals which may take 12-18 months. HSBC’s analysis suggests that a full exemption could reduce health insurance premiums by around 15 per cent. However, the government may face a revenue shortfall of USD 1.2-1.4 billion annually from GST on premiums if exemptions are granted, the report said. 

How many people have health insurance in India?

According to NITI Aayog’s 2021 data, about 70% of the country’s population is covered under public health insurance schemes or voluntary private health insurance policies, while the remaining 30% — over 400 million people — remain outside the ambit of any form of health insurance.

However, there are some inconsistencies in the data. Data from the National Family Health Survey (2019–2021) shows that over two-fifths (41%) of households have at least one member covered under health insurance. However, coverage among individuals is still limited: only 30% of women and 33% of men aged 15–49 are insured under health schemes. Almost half (46%) of those with insurance are covered by a state health insurance scheme, while about one-sixth (16%) are covered by the Rashtriya Swasthya Bima Yojana (RSBY). Smaller proportions of women (3–6%) and men (4–7%) are covered by the Employee State Insurance Scheme (ESIS) or the Central Government Health Scheme (CGHS). State-wise, Rajasthan has the highest proportion of households with coverage at 88%, followed by Andhra Pradesh at 80%, while the lowest coverage — less than 15% — is seen in the Andaman & Nicobar Islands and Jammu & Kashmir.

The gross written premium of the Indian health insurance industry was valued at over INR 637 billion in 2021. Public sector health insurers recorded premiums worth INR 272 billion, private sector health insurers accounted for INR 159 billion, and standalone health insurers recorded around INR 151 billion. Maharashtra emerged as the leading contributor, accounting for 32% of health insurance premiums with over INR 183 billion, followed by Tamil Nadu and Karnataka at 10% each in the same year.

Why is better health insurance coverage essential in India?

Better health insurance coverage is essential in India because of the rising burden of lifestyle diseases such as heart disease, diabetes, and respiratory illnesses.  While treatment for these ailments is available, the cost of care has been increasing due to medical advancements and the use of modern technologies, making healthcare unaffordable for many. 

Millions of people in India die every year from non-communicable diseases (NCDs). In 2021, cancer (55%), circulatory system diseases (43%), and Covid-19 (36%) were among the leading causes of medical claims in Asia, while respiratory diseases (47%), gastrointestinal disorders (36%), and Covid-19 (34%) saw the highest number of claims. 

Adding to this, Indian households spent over INR 120 billion on healthcare and medical services in FY 2022, highlighting the pressing need for affordable and widespread health insurance coverage.

Is it a welcoming move?

Commenting on the GST Council’s decision, Dr Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance, called it a landmark reform that directly addresses the affordability of healthcare. “The GST Council’s decision to bring health insurance under the NIL GST bracket is a landmark move that will make healthcare protection more affordable and accessible for millions of Indians. At a time when medical inflation is rising steeply, this step directly benefits citizens and eases the financial burden on families. It is also in complete alignment with the vision of Insurance for All by 2047, enabling more people to secure their health and future. This progressive decision will accelerate insurance penetration and strengthen the nation’s health security,” he said.

While insurers highlight the financial relief, healthcare experts are equally optimistic about its wider public health impact. Dr Rajiv Kovil, Head of Diabetology and weight loss expert, Zandra Healthcare said that removing GST on insurance premiums is a wise step as it will encourage people, particularly in lower-income groups, to view insurance not as an unnecessary expenditure but as a protective investment — a cultural shift he believes is vital for India.

Dr Kovil added that similar incentives should extend to preventive health practices as well: “Even expenses on gyms, trainers, or fitness equipment should qualify for tax exemptions. Anything spent on one’s health deserves to be treated as an investment, not a luxury. Such policies can push India towards becoming a more health-conscious society.”

He also welcomed the government’s other GST reforms linking them directly to public health outcomes. “The GST hike to 40% on sugary soft drinks and energy beverages is not just a tax—it’s a health message. It nudges people, especially in the middle and lower-income groups, towards healthier choices. Wherever such measures have been implemented globally, they’ve helped reduce diabetes, obesity, and cardiovascular diseases,” he said. 

He explained that India’s sugar consumption is significantly higher than global health recommendations. While the WHO advises just 5–6 teaspoons of added sugar per day (around 5% of daily calorie intake), Indians consume nearly 22 kg per person annually—two to three times higher. 

“Research shows that even a 10% increase in the price of sugar-sweetened beverages results in a direct 10% drop in consumption. This impact is most visible in middle and lower-income groups—the very sections where obesity and diabetes are growing fastest. By taxing unhealthy drinks heavily while keeping water at just 5% GST, the government is sending a clear signal: quench thirst with water, not sugar, ” Dr Kovil explained. 

According to Dr Kovil, this pricing reform will also help drive long-term cultural change: “For too long, many Indians have believed in tackling health problems only after they arise, instead of preventing them. With healthcare costs mounting and 75–80% of the sector privately owned, one serious illness without adequate insurance can push a family into a financial crisis. Insurance should not be seen as an expense—it is an investment in one’s health and future.”

Gyms, salons, barbers, and yoga centres have also seen a tax cut; they are now taxed at 5%, down from 18%. 

Also read: GST cut to 0% on health & life insurance: What it means and why coverage matters