How Does GST Impact on Life Insurance?

Understand the GST-related changes in premiums, surrender values, and payouts in life insurance.
Check Life Insurance Policies
3 min
30-May-2025
Goods and Services Tax (GST) has streamlined India’s taxation system, impacting various sectors, including insurance. Introduced in 2017, GST replaced multiple indirect taxes, offering uniformity but also increasing costs for policyholders. The life insurance industry is significantly influenced by GST, affecting premiums, surrender values, and tax benefits. Understanding these changes helps individuals make informed decisions regarding their policies.

GST impact on life insurance premium

GST has increased the cost of life insurance premiums. Under GST, premiums attract an 18% tax, compared to the earlier service tax rate of 15%. For pure term insurance, the entire premium is taxable at this rate. For endowment and unit-linked policies, only a portion of the premium is taxed, depending on the policy's risk cover.

This increment may seem minor, but over the policy's tenure, it can result in a notable difference in total costs. While this impacts affordability for some, the comprehensive benefits offered by life insurance make it a crucial financial investment despite the GST implications.

GST impact on life insurance surrender value

GST also affects the surrender value of life insurance policies. The surrender value, which is the amount received by a policyholder upon cancelling a policy before maturity, is subject to an 18% GST.

Previously, surrender values were exempt from taxes in many cases, but GST has standardised this, leading to additional costs for policyholders opting to surrender their policies prematurely. This change has discouraged policy discontinuation and encouraged people to retain their policies, aligning with the long-term objective of life insurance to provide financial security.

How will GST affect insurance in future?

In the future, GST could continue to influence the affordability and accessibility of life insurance in India. If the GST rate remains unchanged at 18%, the higher costs could deter new buyers or reduce the coverage amount people opt for.

However, industry experts have called for GST reforms to lower the rates for life insurance, considering its importance for financial protection. A reduced GST rate or exemptions on certain types of policies could make insurance more attractive and accessible, boosting the sector’s growth while supporting the government’s financial inclusion goals.

Are life insurance premiums eligible for GST exemption?

Currently, life insurance premiums are not entirely exempt from GST. While policies such as group insurance or certain pension plans may receive partial exemptions, most life insurance premiums attract an 18% GST rate.

Policyholders can, however, benefit from income tax deductions on premiums paid under Section 80C of the Income Tax Act. Although this does not directly exempt GST, it offers a financial reprieve, encouraging individuals to continue investing in life insurance for long-term financial security.

Conclusion

The introduction of GST has reshaped the taxation of life insurance policies, impacting premiums, surrender values, and affordability. While the uniform tax system simplifies compliance, the higher rates have increased policy costs. To mitigate these effects, prospective reforms or rate reductions could help boost the life insurance sector, ensuring it remains accessible for India’s growing population.

Frequently asked questions

How has GST impacted life insurance policy costs?
GST has increased the cost of life insurance policies by levying an 18% tax on premiums. This rate is higher than the earlier service tax of 15%, making premiums slightly more expensive over the policy term, particularly for term and endowment plans.

What is the impact of GST on surrendering a life insurance policy?
Surrendering a life insurance policy attracts an 18% GST on the surrender value. This added cost discourages premature termination and encourages policyholders to retain their plans, ensuring long-term financial protection.

When were GST changes introduced for life insurance policies?
GST changes for life insurance policies were implemented on 1st July 2017. This replaced the fragmented service tax system, creating a uniform taxation framework for life insurance premiums and surrender values.

What potential GST reforms could influence life insurance policies?
Future GST reforms could lower the 18% tax rate on life insurance premiums, making policies more affordable. Potential exemptions or reduced rates for specific policy types could encourage broader adoption, supporting financial inclusion and increasing insurance penetration in India.

Show More Show Less

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.

Explore and apply for co-branded credit cards online.

Invest in fixed deposits and mutual funds on the app.

Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.

Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.

Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.

Shop from over 100+ brand partners that offer a diverse range of products and services.

Use specialised tools like EMI calculators, SIP Calculators

Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Co. Limited , Star Health & Allied Insurance Co. Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limitedunder the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

Note – While we have made all efforts and taken utmost care in gathering precise information about the products, features, benefits, etc. However, BFL cannot be held liable for any direct or indirect damage/loss. We request our customers to conduct their research about these products and refer to the respective product’s sales brochures before concluding their sale.

Show All Text