Big relief: Health and life insurance exempted from GST

In a sweeping set of tax changes, the GST Council on Wednesday exempted individual health and life insurance from the Goods and Services Tax, marking one of the biggest reliefs for households and the healthcare sector. Until now, health insurance attracted an 18 per cent GST, but that has been cut to nil with effect from September 22.

The announcement came after the 56th GST Council meeting on Wednesday, where members also approved the abolition of the 12 per cent and 28 per cent slabs. In their place, a new 40 per cent bracket has been created for sin and luxury goods.

Union Finance Minister Nirmala Sitharaman said the measures were designed to bring down the burden on the average consumer. "These reforms have been carried out with a focus on the common man. Every tax on the common man's daily use items has gone through a rigorous review and in most cases the rates have come down drastically. Labour-intensive industries have been given a good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence," she said in a press briefing.

The impact of the rationalisation will be felt across sectors. In the daily essentials basket, hair oil, shampoo, toothpaste, toilet soap, toothbrushes, shaving cream, butter, ghee, cheese, dairy spreads, pre-packaged namkeens and utensils will now be taxed at 5 per cent instead of 12–18 per cent. Feeding bottles, napkins for babies, clinical diapers, and sewing machine parts have also been brought down to 5 per cent.

Alongside insurance, thermometers, medical oxygen, and diagnostic kits now attract zero GST, while corrective spectacles are taxed at just 5 per cent.

"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," said Dr. Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance. "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."

Hanut Mehta, CEO and Co-Founder at BimaPay Finsure, said: "The GST Council’s move to exempt individual health and life insurance from GST is a major shift. For policyholders, it means premiums will now be lighter by 18 percent. From a premium financing perspective, the immediate ticket size per customer will reduce as the tax element disappears. But the bigger opportunity lies in affordability—lower entry costs will attract more first-time buyers, expanding the customer base and driving wider adoption of premium financing. Cheaper premiums also encourage people to opt for higher sum insured, closing the protection gap and strengthening overall coverage. On the insurer side, losing input tax credit raises costs, which may eventually feed into base premiums—something financing partners must adapt to. This development is a turning point. Smaller-ticket financing at scale will require new efficiencies, but it also supports deeper financial inclusion. As insurance becomes more affordable and accessible, financing ensures customers don’t delay or skip coverage due to upfront costs. In short, the exemption cuts immediate costs, challenges insurers on pricing, and pushes financing firms to innovate—all while boosting insurance penetration in India."