GST on Health May Be Cut or Scrapped in Diwali Reform Push

This move is aimed at easing household expenses and expanding insurance coverage and is expected to be part of a wider “next-generation GST reform” package that Prime Minister Narendra Modi has promised will be introduced by Diwali.

The government is preparing a comprehensive review of the Goods and Services Tax (GST), which could see health and term life insurance premiums taxed at a lower rate or brought under a nil GST category.

The move, aimed at easing household expenses and expanding insurance coverage, is expected to be part of a wider “next-generation GST reform” package that Prime Minister Narendra Modi has promised will be introduced by Diwali.

At present, both health insurance and pure-risk term life policies attract an 18 percent GST levy. This has been widely viewed by policymakers and industry experts as a barrier to affordability, particularly in a country where insurance penetration remains below global averages.

The GST Council, the apex decision-making body on indirect taxes, has already taken steps to examine the issue in detail.

In its 54th meeting held on September 9, 2024, the Council formally acknowledged the burden of high taxes on insurance and announced the creation of a dedicated panel.

The official press note released after the meeting stated, “GST Council recommends the Group of Ministers (GoM) on Life and Health Insurance-related GST submit a report by the end of October 2024.”

This move set the stage for targeted recommendations on whether the rates should be reduced or exempted and how such changes would affect the availability of input tax credit for insurers.

Prime Minister Modi has signaled that the changes will be part of a wider rebalancing of the GST system, which was rolled out in 2017.

In his Independence Day address on August 15, 2025, he told the nation, “I am going to give a great gift this Diwali. Over the past eight years, we implemented a major GST reform and simplified taxes. Now, the time has come for a review. We have conducted it, consulted with states, and are set to introduce a ‘next-generation GST reform.’”

His remarks were seen as the clearest indication yet that the long-awaited overhaul of GST slabs will be implemented within the coming weeks.

While government sources have indicated that discussions are centered on cutting insurance premiums to a concessional 5 percent GST rate, or exempting them altogether, no official notification or Council resolution has yet been issued to confirm the outcome.

Finance ministry officials have noted that the GST Council will take a call at its next meeting, expected in September, after considering the report of the GoM and the fiscal implications of revenue loss.

The technical debate remains around whether a nil-rated GST is better than a reduced positive rate. A nil rate would lower the tax shown on policyholders’ invoices to zero but would also remove the right of insurers to claim input tax credit on their operational costs, potentially raising their expense base.

A reduced positive rate, such as five percent, would retain input credits and allow savings to be passed directly to consumers.

For now, the official position is that the government is committed to reviewing insurance taxation as part of its larger promise to simplify GST.

The final word will rest with the GST Council, but policyholders and the insurance industry are watching closely as Diwali approaches, hoping that this time the festival season will bring a lighter tax burden on essential financial protection products.

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