After the historic introduction of GST on 01st July 2017, there have been various amendments to the GST law. Although the announcement made on 03rd September, 2025, by the Central Government after the conclusion of the 56th Meeting of the GST Council has been adjudged as a significant reform. It has also been termed as GST 2.0 where a plethora of rate revisions for various goods and services have been announced.
One of the noteworthy changes was the exemption of Health & Life Insurance premiums from the levy of GST. Since the inception of GST, the Health & Life Insurance premiums were under the ambit of GST at the rate of 18% (9% + 9%). Since the amount of premium on such insurance products increases per year, the individual cost of premium was going beyond the affordability of most of the Indian masses. However, the GST Council in its 56th Meeting has recommended the reduction of GST on Health & Life Insurance premiums from 18% to the exemption category. As is, the Central Government accepted the recommendation made by the GST Council and has classified the Health & Life Insurance premium in the GST exemption category.
As per the FAQs (Frequently Asked Questions) released by the Ministry of Finance on 03rd September, 2025, the FAQ number 56 & 57 provide insights on the exemption of GST on the premiums of Life Insurance & Health Insurance, respectively. Following is the extract of the same:
56. Which policies are covered under the ambit of the GST exemption recommended on life insurance?
A: 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.
57. Which policies are covered under the ambit of the GST exemption recommended on health insurance?
A: The policies covered under the exemption recommended on health insurance are all individual health insurance policies, including family floater plans and senior citizen policies and the reinsurance services thereof.
Hence, if one reads between the lines, it can be seen that the exemption has been applied only on the individual policies of Life & Health insurance. However, the Group Insurance policies have not been mentioned meaning the premium to be paid under various Group Insurance schemes will continue to be under the ambit of GST.
So, should all the salaried individuals who are covered under Group Insurance policies from their employers should not renew after the current cycle ends? It sure seems the right way since individual policies shall be more affordable due to the exemption of GST. There is a catch.
Why is Group Insurance as important as Individual Insurance?
The concept of Group Insurance lies in the name itself. Insurance benefits are provided at a relatively lower cost since a large number of persons (employees/payroll persons) subscribe to the particular insurance scheme. Although, the insurance cover and benefits are limited and restricted it is vital for a salaried individual/ employee to be covered under the Group Insurance scheme.
Apart from the group insurance policy, a salaried individual/employee should also have his/her own individual policy where proper benefits and appropriate and adequate cover is available to the salaried person/employee as well as his/her family. However, it is not advisable for the salaried person/employee to opt out of the group insurance scheme just to save a certain sum of money.
Firstly, let us discuss the mechanism of group insurance policies. Employers be it private or corporates foot the bill for the group insurance premium of their employees/persons on payroll. Hence, it is billed as Cost to Company. In some places it is fixed in the remuneration structure of the employee. The benefits provided are hierarchical as well i.e. the benefits cover increase as per the hierarchy. However, the benefits of group insurance policies are restricted to the employee, his/her spouse and kids. Parental coverage/senior citizen coverage is provided at an additional cost which is borne by the employee.
Secondly, in addition to the basic group cover policy, top up plans are also provided for additional cover and benefits. Since the additional benefits are provided as an add on to the basic group insurance, the same are made available at subsidized rates.
As mentioned above, the group insurance policies have not been exempted from the levy of GST. The premium on group insurance shall continue to attract GST. Hence, the premium for Group Insurance shall not reduce. Yet it is advisable to continue with the group insurance scheme even if an individual has his/her own individual policy. Following are the benefits that come with the Group Insurance cover which are mostly not available with the individual/retail policy:
- No waiting period for pre-existing diseases i.e. the cover starts immediately even if there is any pre-existing disease/ailment. This causes a huge relief where the group insurance includes parental coverage as well.
- No medical underwriting is required for group insurance plans
- Administration of policy and claim matters are looked after by the employer since it is a group policy; the employer has a responsibility to ensure all the benefits of the scheme are properly and fully provided to the employees wherever and whenever required.
- Procedural issues regarding claim settlement, top up plans, etc. are administered by the employer.
- Rejection rates are comparatively lower in group insurance claims rather than individual insurance.
Considering all these points, one can make a decision of continuing with the group insurance policies despite no exemption from GST. Furthermore, individual policy also needs to be persisted since the group insurance coverage shall be terminated once the employee retires/resigns.
Likewise, do not mix up savings and group insurance coverage due to the GST exemption on individual policies. Both are completely different scenarios and a lack of group insurance coverage might take a huge chunk out of your pocket in case of any medical emergency or any undesirable incident, even if one is having adequate individual coverage.
Input Tax Credit is no longer available to the Insurers
The 56th Meeting of the GST Council doled out an unfavorable news for the insurers where the insurers can no longer claim Input Tax Credit (ITC) on the GST collected on the premiums. Till date, the insurers would pass on the GST collected on premiums to the government and claimed ITC on the same by setting off the GST paid on their own expenses such as agent commissions, tie up costs, advertising, etc. However, from 22nd September, 2025, no set off shall be available resulting in GST being a full cost to the insurers.
To negate this issue of non-ITC, the insurers might marginally increase the premiums from the next cycle. This may be a step that could be taken to lower the increased cost burden. Ultimately, the consumers may not be able to gain the fruits of GST exemption on the insurance premium to the fullest.
Conclusion
Having an individual insurance cover is non-negotiable; added benefit is the GST exemption. However, group insurance coverage is equally significant even if it is still under GST ambit. Salaried persons/employees should continue with the group insurance schemes. At the same time, they have to be more vigilant while selecting the individual policy, given it comes at a "premium" now that the ITC is no longer available to the insurers.
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