The 56th GST Council meeting has approved significant changes in the taxation of insurance products. According to Annexure-III of the official press release, GST has been exempted on all individual life, health and savings insurance policies. In addition, the Council has reduced GST on third-party insurance for goods vehicles to 5% from 12%.
What this means for consumers
For retail customers buying life and health cover, the exemption makes policies more affordable, as premiums will no longer carry GST. This is expected to improve penetration of insurance products, especially in under-served categories like health.
For goods vehicle owners, the GST rate on third-party cover — which is mandatory — has been lowered, directly reducing the cost of compliance for transporters and logistics operators.
What about car and two-wheeler insurance?
The press release does not explicitly mention retail motor insurance such as cars or two-wheelers. Only individual life, health and savings policies have been exempted, while third-party insurance for goods vehicles has been reduced to 5%. Motor insurance therefore remains outside the scope of this exemption unless the government issues further clarification.
Implications for insurers
While the move is consumer-friendly, insurers will no longer be able to claim input tax credit (ITC) on their expenses for exempted products. This could raise costs for companies, and some may adjust base premiums marginally to balance the impact.
Why the GST Council did this
The decision is aimed at improving affordability and encouraging wider penetration of essential insurance products. For goods vehicles, the reduced GST rate aligns with the government’s push to lower logistics costs and improve efficiency.
Disclaimer: This article is based on details from the 56th GST Council press release (Annexure-III) and does not constitute investment or policy advice.
