GST 2.0: Probable premium cut from 18% to 5% poised to expand India’s insurance net, says report

India’s landmark reform journey is entering a new chapter with the government’s proposal to simplify the Goods and Services Tax (GST) regime. Nearly eight years after GST’s rollout, policymakers are now pushing for a leaner, simpler, and more growth-oriented structure. The latest draft, shared with states and awaiting GST Council approval, proposes to collapse the current five slabs—0%, 5%, 12%, 18% and 28%—into just two main rates of 5% and 18%, alongside a 40% special rate for sin and demerit goods.

A report by Tata Mutual Fund highlights that this reform is more than a rate shuffle—it is a structural shift toward efficiency, transparency, and predictability. Businesses today grapple with multiple slabs that fuel disputes and compliance burdens. Under the proposed structure, essentials would be taxed at 5%, most other goods and services at 18%, with nearly all items in the 12% bracket moving down to 5% and 90% of 28% slab items sliding to 18%.

One of the most socially significant changes is the proposed cut in GST on insurance premiums. Life and health insurance, currently taxed at 18%, could fall to 5%—or even zero in select cases. This move would make policies more affordable, encourage wider adoption, and deepen penetration in a country where insurance coverage remains inadequate. For insurers, it promises access to a broader customer base and stronger long-term growth.

For households, GST 2.0 translates into cheaper essentials, processed foods, and services, boosting disposable income and consumption. For businesses, it means fewer ambiguities, easier compliance, and smoother input tax credit flows.

Sectoral impact

The benefits are expected to ripple across industries. FMCG companies, for instance, will gain from the shift of processed food items from 12% to 5%, improving affordability and demand. Consumer durables and electronics, currently taxed at 28%, would drop to 18%, making products like refrigerators, TVs, and air conditioners more accessible—especially ahead of festive demand.

The automobile sector could see a revival, with GST on small cars, two-wheelers, and commercial vehicles expected to fall from an effective 28% plus cess to 18%. This reduction would enhance affordability for middle-class buyers and stimulate demand across auto and ancillary industries.

Cement and construction materials, key to infrastructure and housing, may also shift to 18%, cutting input costs. This could make housing more affordable while supporting the government’s infrastructure push.

While petroleum, electricity, and alcohol are unlikely to be included in this round, the thrust of GST simplification is clear: fewer distortions, greater efficiency, and a stronger consumption cycle.

As the GST Council readies to finalize the specifics, GST 2.0 is shaping up as more than a tax reform—it is a catalyst to empower households, boost industries, and sharpen India’s growth trajectory.