GST Impact on Life Insurance Plan

GST impact on life insurance explained in detail—understand its effect on premiums, surrender value, tax benefits, and what future changes in insurance costs may mean for policyholders.
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3 min
30-May-2025

GST — the Goods and Services Tax — has played an important role in shaping how we pay for financial products, including life insurance. For years, GST was a part of life insurance premiums, influencing overall costs and policy values. While it ensured transparency in taxation, it also shaped how returns and surrender values were calculated.

Now, there’s even better news for policyholders. From 22nd September 2025, the Centre has removed GST on all individual life insurance policies — including term plans, ULIPs, and endowment policies. The exemption also covers family floater policies, senior citizen plans, and subsequent reinsurance, making life insurance more affordable and even more rewarding for investors.

How GST affects your life insurance premiums?

Life insurance comes in many forms — term plans, ULIPs, and endowment policies — and GST was applied differently to each. To understand the impact of its removal, let’s look at the scenario before and after the 2025 exemption.

Before September 22, 2025:

  • Term life insurance: The full premium is taxed at 18%.
  • Endowment plans: Only a portion of the premium — mostly the investment component — is taxed.
  • ULIPs (Unit Linked Insurance Plans): The risk cover portion is taxed.

Now, after September 22, 2025:

  • No GST on any life insurance premium — whether it’s term, ULIP, or endowment.
  • Renewal premiums, top-ups, and administrative charges are also GST-free.
  • Policyholders benefit from lower costs and more efficient investment growth.

With GST gone, every rupee of your premium now works harder — for both protection and wealth creation.

Planning to buy or renew a policy? Check life insurance plans and compare premiums instantly based on your age, income, lifestyle and financial goals. Get quote for the suitable one.

How does GST impact on life insurance surrender value?

When people think about life insurance, they don’t just look at protection; they also consider liquidity. That’s where surrender value comes in. The GST reform has a direct effect on how much you actually receive if you exit your policy early or at maturity. Know how 0% GST on life insurance affects your surrender value:

Earlier

Surrender values are subject to certain deductions such as fund management charges, administrative charges, etc. On such charges GST at 18% was levied up to September 22, 2025. Accordingly, the surrender values were further subject to deductions of GST on above charges, thereby slightly reducing payouts.

Now (w.e.f. September 22, 2025)

  • No GST shall be levied on the fund management charges, administrative charges, etc. This means that surrender values will only be subject to deductions of fund management charges, administrative charges, etc. without any GST impact, thereby, slightly increasing payouts.
  • Policyholders enjoy higher net payouts whether they exit during the lock-in period or after maturity.

This change means greater financial flexibility — and more confidence in your policy’s value at every stage.

Looking to invest long-term? Explore life insurance plans that grow with your goals. Compare premiums and get quote!

How will GST affect insurance in future?

The removal of GST in 2025 is a landmark reform that strengthens the appeal of life insurance by:

  • Making policies more affordable for individuals and families.
  • Boosting returns on ULIPs through efficient compounding.
  • Encouraging more people to secure protection and long-term savings.

Instead of factoring GST into your financial planning, you can now focus entirely on choosing the right coverage and maximising tax benefits.

Planning for the long term? Life insurance is now more cost-effective than ever — and better aligned with your financial goals. Get a quote now!

Are life insurance premiums eligible for GST exemption?

Yes — from 22nd September 2025 onwards, all individual life insurance policies are fully GST-exempt. Earlier, exemptions were limited, but now the benefit is universal.

And the best part? You still enjoy:

  • Section 80C: Premiums qualify for deductions up to Rs. 1.5 lakh per year.
  • Section 10(10D): Maturity proceeds and death covers remain tax-free (subject to conditions).

So not only is GST gone, but life insurance also continues to deliver powerful tax advantages at both entry and maturity.

Pro Tip

Create wealth and meet your financial goals with a ULIP investment plan, start investing from Rs. 3,000/month.

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The removal of GST on life insurance premiums marks a positive turning point for investors. Policies are now more affordable, efficient, and rewarding, giving you greater value without additional tax burdens.

Life insurance continues to be one of the most reliable ways to protect your loved ones and build long-term wealth — and with the GST exemption, it’s now an even smarter choice.

Looking to get started? Compare life insurance options tailored to your needs, budget, and goals — and make an informed choice today. Get quote!

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Frequently asked questions

How has GST impacted life insurance policy costs?

Until September 21, 2025, life insurance premiums attracted an 18% GST, slightly increasing costs for term, ULIP, and endowment plans. From September 22, 2025 onwards, the Centre has completely removed GST on individual life insurance policies, family floater plans, and senior citizen policies — making premiums more affordable.

What is the impact of GST on surrendering a life insurance policy?

Earlier, up to September 22, 2025, surrendering a life insurance policy attracted 18% GST on charges deducted from the surrender value (i.e., 18% GST was levied on the fund management charges, administrative charges, etc.). However, w.e.f. September 22, 2025, no GST shall be levied on above charges. This means policyholders now get a better payout when exiting early. However, it is recommended to stay invested till maturity for maximising long-term benefits.

When were GST changes introduced for life insurance policies?

GST was first implemented on 1st July 2017, replacing the earlier service tax system. At that time, life insurance premiums were taxed at 18%. However, from 22nd September 2025, the government has fully exempted life insurance policies from GST, making them more cost-effective and policyholder-friendly.

What potential GST reforms could influence life insurance policies?

With GST already removed from individual life insurance, family floater plans, and senior citizen policies, the focus now shifts to maintaining this tax-free benefit. Future reforms may expand exemptions to other financial products, further boosting affordability and encouraging more people to secure life insurance.

Does GST make long-term insurance more expensive?

Yes, GST slightly increases the overall cost of long-term insurance plans, as it’s added to the premium amount. However, with the recent Zero GST reform on individual life insurance, the premium cost will now reduce, making policies more affordable for long-term policyholders.

How does GST affect life insurance tax benefits?

GST does not impact your life insurance tax benefits under Sections 80C and 10(10D) of the Income Tax Act. You can still claim deductions on the total premium paid, including GST, and enjoy tax-exempt maturity or death covers as per the policy terms.

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Disclaimer

*T&C Apply. Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Life Insurance Limited (Formerly known as Bajaj Allianz Life Insurance Company Limited), HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj General Insurance Limited(Formerly known as 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 Company Limited, Star Health & Allied Insurance Company Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited, Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite 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. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure & policy wordings 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 distributor of other third party products from Assistance service providers such as CPP Assistance Services Private Limited, Bajaj Finserv Health Limited. etc. All product information such as premium, benefits, exclusions, value added services etc. are authentic and solely based on the information received from the respective Insurance company or the respective Assistance provider company.

Note- While we have made all the 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 products sales brochure and policy/membership wordings before concluding sales.