GST 2.0 Reforms: What They Mean for the Life Insurance Industry and Consumers

The Indian insurance industry has long been advocating for rationalisation of Goods and Services Tax (GST) on life and health insurance products. With the rollout of GST 2.0 reforms, expectations are high that the sector will finally receive much-needed relief and structural clarity. The reforms aim to simplify compliance, widen the tax base, and rationalise rates—moves that could significantly alter how insurers price products and how consumers perceive insurance as a financial tool.

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Current GST Challenges in Life Insurance

Under the present GST structure:

• Term plans and risk-only products attract 18% GST on premium.

• Endowment and ULIP products are taxed on the risk portion and charges, creating complexity.

• Premiums paid towards annuities, pension products, and investment-linked insurance attract varying tax treatments.

This has often made life insurance appear more expensive to consumers, especially when compared to mutual funds or small savings schemes, discouraging penetration in a country where financial protection remains alarmingly low.

Impact of GST 2.0 on the Life Insurance Industry

1. Lower Premium Burden

A reduction or rationalisation of GST rates on pure risk products like term insurance will make policies more affordable. This could drive higher adoption, particularly among the middle class and younger consumers.

2. Boost to Protection Gap Reduction

India faces one of the world's largest protection gaps. Affordable pricing through lower GST can encourage families to opt for adequate life cover, helping insurers expand their reach in Tier 2 and 3 cities.

3. Simplification in Tax Treatment

By harmonising GST across various life insurance products, GST 2.0 could remove the confusion that exists today between term, endowment, ULIP, and pension products. A uniform approach will ease compliance for insurers and improve transparency for policyholders.

4. Encouragement for Long-Term Savings

Investment-oriented life insurance products, if taxed at a lower or uniform rate, could emerge as more competitive against mutual funds and other savings instruments. This will support long-term household financial security.

5. Operational Ease for Insurers