GST on ULIP Premiums: Impact and Details

Unit Linked Insurance Plans (ULIPs) combine insurance coverage with investment opportunities, making them a popular choice for Indian investors. Until recently, understanding the Goods and Services Tax (GST) on ULIP premiums was crucial, as it directly affected the overall cost and long-term returns of the policy.

Earlier, GST at 18% was applied on premiums paid towards ULIPs, covering charges such as life cover, fund management, and administrative expenses. Even surrender values attracted GST under certain conditions.

But there’s good news for policyholders. From 22nd September 2025 onwards, the Centre has removed GST on all individual life insurance policies—including ULIPs, term life, and endowment plans—along with subsequent reinsurance. This exemption also applies to family floater policies and senior citizen plans, making life insurance more affordable and improving investment outcomes.

How much GST is implied on ULIP premiums?

Until recently, ULIPs—like other life insurance products—attracted 18% GST on certain components of the premium, such as life cover charges, fund management charges, and administrative fees. This increased the overall cost of holding a policy.

However, from 22nd September 2025 onwards, the Centre has removed GST on all individual life insurance policies, including ULIPs, term life insurance, and endowment plans, as well as on subsequent reinsurance. The exemption also applies to family floater policies and policies for senior citizens.

This means policyholders will no longer pay GST on any portion of their ULIP premiums, making these plans more cost-effective and improving the overall returns for investors.

Key updates about GST on ULIP premiums:

No GST on first-year premium: Earlier, GST was charged at 18% on the portion allocated to life cover and fund management. Now, it is fully exempt.
No GST on renewal premiums: Previously, renewal premiums attracted 18% GST on relevant charges. This has now been removed.
No GST on fund management charges: Fund management charges within ULIPs will no longer carry GST.
No GST on additional charges: Administrative and premium allocation charges are now GST-free.

Example (Before vs After):

Before 22nd Sept 2025: If your first-year premium was Rs. 1 lakh and Rs. 20,000 was allocated for life cover and fund management, GST of 18% (₹3,600) applied.
After 22nd Sept 2025: No GST is charged, so you save the full Rs. 3,600.

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What is the impact of GST on policy returns?

Earlier (Before Sept 2025):

GST increased the overall cost of ULIPs, reducing net returns over time. Policyholders paid higher upfront costs, faced a reduced compounding effect due to GST on fund management charges, and even saw lower surrender values.

Now (After Sept 2025):

Higher returns: With no GST deductions, more money goes into your fund, boosting compounding benefits.
Improved affordability: Policyholders save on upfront costs, especially in the first year.
Better surrender values: Since no GST applies to charges, payouts are higher when policies are surrendered.
Simplified transparency: Investors no longer need to calculate GST on different premium components.

Pro tip: With GST removed, the focus shifts to choosing ULIPs with low charges and consistent premiums to maximise long-term wealth creation.

Insure, invest, and save—ULIP offers high returns with tax-free benefits. Secure your financial future today! Check plans and premiums! Get quote!

Is there any GST applicable on the surrender value and how much?

Before 22nd Sept 2025:

Fund management charges and administrative fees deducted from the surrender value attracted 18% GST.
For example, if fund management charges were Rs. 5,000, GST of Rs. 900 applied, reducing the payout.

After 22nd Sept 2025:

No GST applies to surrender values.
Policyholders receive higher net payouts whether they exit early (within the lock-in period) or after maturity.

With 0% GST on life insurance, such deductions could have less impact on your payout.

Tax benefits of ULIPs under Section 80C and 10(10D)

Save taxes with 80C: Premiums paid towards your ULIP qualify for deductions under Section 80C, up to Rs. 1.5 lakh per year. This means your investment not only grows wealth but also lowers your taxable income.
Enjoy tax-free maturity with 10(10D): The maturity proceeds, including the investment returns and insurance benefits, are exempt from tax under Section 10(10D) (subject to conditions).
Dual advantage: With ULIPs, you get the rare combo of tax savings + market-linked growth + life cover, making them a smart choice for long-term financial goals.

Tax benefits of ULIPs under Section 80C and 10(10D)

Save taxes with 80C: Premiums paid towards your ULIP qualify for deductions under Section 80C, up to Rs. 1.5 lakh per year. This means your investment not only grows wealth but also lowers your taxable income.
Enjoy tax-free maturity with 10(10D): The maturity proceeds, including the investment returns and insurance benefits, are exempt from tax under Section 10(10D) (subject to conditions).
Dual advantage: With ULIPs, you get the rare combo of tax savings + market-linked growth + life cover, making them a smart choice for long-term financial goals.

Conclusion

The removal of GST on ULIP premiums from 22nd September 2025 marks a significant change for investors. What once reduced returns and increased costs will no longer affect your policy. ULIPs are now more cost-efficient, transparent, and rewarding—helping you grow wealth while enjoying life insurance protection.

If you’re considering a ULIP, now is the perfect time. With GST gone, every rupee of your premium works harder for your financial future.

Popular income tax act & saving tips

Section 80C	Section 80CCC	Taxation
Post office tax saving scheme	What is cess on income tax	Marginal rate of tax
Deferred tax liability	Exempt exempt exempt in income tax	Exemptions under new tax regime

Frequently asked questions

What is the current GST rate on ULIP premiums?

As of 22nd September 2025, there is no GST applicable on ULIP premiums. Earlier, a rate of 18% was charged on components such as fund management fees, administrative costs, and premium allocation charges, but this has now been fully removed.

Does GST reduce the overall returns from ULIPs?

Not anymore. Since GST has been removed from ULIP premiums and related charges, investors no longer face deductions that reduce returns. Earlier, GST marginally affected long-term compounding, but now every rupee of your premium goes directly into your investment.

Is GST applicable on the surrender value of ULIPs?

No. From September 22, 2025 onwards, GST is no longer applicable on deductions from the surrender value of ULIPs. Previously, charges like fund management and administrative fees attracted 18% GST, but these are now fully exempt, ensuring higher payouts for policyholders.

Can I claim GST input credit on ULIP premiums?

Since GST is no longer applicable on ULIP premiums (effective September 22, 2025), the question of input credit does not arise. Earlier, input credit could not be claimed because ULIP premiums were treated as personal expenses and not business-related expenditures.

Does GST apply on ULIP top-up premiums?

No. From 22nd September 2025 onwards, GST is not applicable on ULIP premiums, including top-up premiums. Earlier, top-ups attracted 18% GST on fund management and other charges, but this has now been fully removed—making additional investments more cost-effective.

How does GST affect long-term ULIP investment costs?

It doesn’t anymore. Since GST has been removed on ULIP premiums and charges, policyholders now enjoy lower costs and improved compounding benefits. Previously, GST slightly reduced long-term returns by eating into invested amounts, but that impact is now gone.

Are there any tax benefits to balance the GST on ULIP premiums?

Yes—but now you get the best of both worlds. Even though GST is no longer applicable, ULIPs continue to offer tax benefits under Section 80C (on premiums paid) and Section 10(10D) (on maturity proceeds). This makes ULIPs more attractive than ever for tax-efficient wealth creation.

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