56th GST Council Meeting: New GST Rates Announced and Big Relief on Life & Health Insurance Premiums

The 56th GST Council Meeting, chaired by Union Finance Minister Nirmala Sitharaman, has brought several key changes to India’s indirect tax framework. One of the most talked-about reforms is the removal of GST on life and health insurance premiums. This landmark decision is expected to provide relief to millions of policyholders while reshaping the insurance sector’s cost structure. Let’s break down the updates in detail.

🧾 Key Highlights of the 56th GST Council Meeting

The Council approved a major GST rate rationalisation, continuing its roadmap towards simplifying India’s tax structure. Here are the main updates:

• Merging of GST Slabs:
  The 12% GST slab has been removed. Items previously taxed at 12% have been shifted to either the 5% or 18% slab, depending on their category.

• Rationalisation of 28% Slab:
  Around 90% of items taxed at 28% are now brought down to the 18% slab. Only luxury and sin goods remain in the highest bracket.

• GST on Life and Health Insurance Removed:
  Effective 22 September 2025, premiums for life and health insurance policies will no longer attract GST.

These changes are expected to lower prices for end consumers, improve compliance, and boost consumption across multiple sectors.

🟢 GST Exemption on Insurance Premiums

Current Scenario

Until now, life and health insurance premiums attracted 18% GST. For example:

• Base Premium: ₹20,000

• GST @18%: ₹3,600

• Total Payable: ₹23,600

What Changes from September 22, 2025

From this date onwards, policyholders will only pay the base premium amount. Using the same example:

• Base Premium: ₹20,000

• GST: Nil

• Total Payable: ₹20,000

That means a direct saving of nearly 15–18% for individuals and families.

💸 How Much Will You Really Save?

The exemption will reduce out-of-pocket expenses for policyholders. For those paying annual premiums of ₹50,000 to ₹1,00,000, the savings could be substantial.

However, the actual benefit will depend on how insurance companies adjust pricing. Since insurers will lose the ability to claim Input Tax Credit (ITC) on their backend costs (technology, commissions, operations), some may slightly increase the base premium.

⚠️ Industry Concerns

While consumers celebrate, the insurance industry has raised valid concerns:

• Loss of ITC: Insurers use ITC to offset costs like technology upgrades, marketing, and customer service. With exemption, they cannot claim ITC, increasing their operational costs.

• Potential Base Premium Hike: To balance the loss of ITC, companies might increase base premiums, which could reduce the overall savings for policyholders.

🧠 Expert Suggestion: Zero-Rated Instead of Exempt

Experts suggest that instead of making insurance GST exempt, the government should make it zero-rated.

• Exempt Supply: No GST charged to the customer, but no ITC available to the insurer.

• Zero-Rated Supply: No GST charged to the customer, but ITC remains available to insurers.

If zero-rating is adopted, both insurers and policyholders can benefit—customers won’t pay GST, and insurers can still claim ITC to manage costs.

📈 Broader Impact of GST Reforms

The Council’s decisions, including the GST cut on insurance and rationalisation of slabs, will have multiple benefits:

• Consumers: Reduced financial burden on essentials like healthcare and personal protection.

• Insurance Penetration: Lower premiums may encourage more people to buy health and life policies, supporting India’s goal of wider financial inclusion.

• Economy: Simplified GST rates could boost consumption across sectors such as automobiles, FMCG, real estate, and consumer durables.

✅ Conclusion

The 56th GST Council Meeting has introduced much-awaited reforms, especially the removal of GST on life and health insurance premiums. While this is a welcome relief for policyholders, the long-term impact will depend on how insurers manage the loss of ITC.

If implemented with industry-friendly adjustments, this move could strengthen both consumer confidence and insurance adoption in India.

As always, taxpayers and policyholders are advised to keep a close watch on the fine print and consult experts before making decisions.

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source – blob:https://www.cbic.gov.in/dc50ab1b-f586-4819-98b7-428525d47a48