GST on Insurance Premium

Goods and Services Tax (GST) applies to most insurance premiums paid in India, and the effective rate depends on the line of insurance and the nature of the policy. For pure-protection life insurance (term plans) and for health insurance, GST is levied at 18% on the full premium. For endowment, money-back, and similar savings-linked life policies, GST is applied at 4.

5% on the first-year premium (25% of premium treated as the risk component, then 18% on that) and at 2. 25% on renewal premiums (12. 5% of premium treated as the risk component).

For single-premium life annuity plans, the applicable rate is 1. 8% of the premium (10% treated as the risk component, 18% on that). For motor insurance, GST at 18% applies on the own-damage portion of the premium; the third-party portion is also in the GST net at 18%.

Worked example: a 32-year-old non-smoker buying a ₹1 crore term plan with a base premium of ₹12,500 pays ₹12,500 + 18% GST = ₹14,750 total; the GST of ₹2,250 goes to the central and state governments. On a ₹18,000 family floater health premium, the GST adds ₹3,240, taking the outgo to ₹21,240. On a ₹60,000 annual endowment premium in its renewal year, GST of 2.

25% = ₹1,350, taking the outgo to ₹61,350. A common misconception is that GST on insurance premium is part of the ₹1,50,000 ceiling under Section 80C or the ₹25,000 ceiling under Section 80D — meaning only the base premium counts for deduction. In fact, IRDAI and CBDT circulars clarify that the GST component on life and health insurance premiums is also eligible for deduction under Section 80C (for life) and Section 80D (for health), as it is a statutory levy forming part of the total premium paid.

Keep the tax invoice, not just the premium receipt, as proof. Another common misconception is that NRIs buying Indian insurance policies escape GST. They do not — GST applies on the basis of the location of the service provider (the Indian insurer) and is charged on the premium regardless of the buyer's residential status.

Periodic policy discussions have considered a lower GST rate on term and health premiums as an affordability measure; any change would be announced through a GST Council decision. Related: Section 80D, Section 80C, IRDAI.