GST on insurance premiums - Clarifications

 GST on Insurance Premiums:

The Indian government’s decision to scrap the 18% Goods and Services Tax (GST) on life and health insurance premiums starting September 22, 2025, has brought relief to millions of policyholders. However, it has also raised confusion. One major question being asked is: What happens to those who have already paid lump-sum premiums for multi-year policies?

While monthly or quarterly payers will automatically benefit from the exemption on payments due after September 22, those who prepaid for long-term policies are now wondering whether they can get a GST refund for the future coverage years already paid.

The answer, unfortunately, is no. If you’ve already paid a lump-sum premium—say, for a 3-year health insurance or a single premium life insurance plan—the GST collected at the time of purchase has been deposited with the government. Since the transaction is considered complete, there is no legal or procedural mechanism for insurers to refund GST retrospectively.

“The GST benefit applies only to transactions made on or after the effective date. Therefore, policyholders who have already locked in their premium for multiple years will not be eligible for any refund of the GST component for the remaining tenure of their policy.”

In simple terms: even if your policy covers future years, you won’t receive any reimbursement of GST for premiums already paid before September 22.

What About Monthly, Quarterly, or Annual Premiums?

For those paying premiums in installments, the situation is different. If your next payment falls on or after September 22, 2025, it will be GST-free.

For example:

Suppose you pay your life insurance premium on the 23rd of every month.

The installment paid on August 23 attracted 18% GST.

The next installment on September 23 will be completely GST-free.

This rule applies across monthly, quarterly, semi-annual, and annual premium structures, provided the due date is on or after September 22.

Grace Period Confusion:

GST Still Applies if Due Date is Before September 22

A common doubt arises around grace periods, which allow policyholders a few extra days after the due date to pay their premium. Many wonder if paying during the grace period after September 22 would mean 0% GST.

The answer: No.

If your due date is before September 22, GST will still apply—even if you pay later, within the grace period.

For example:

If your health insurance premium was due on September 15, and you paid on September 25 (within the grace period), GST at 18% will still be charged.

This is because the due date—not the actual payment date—determines GST applicability.

Free-Look Period and Policy Cancellations: A Rare Case for GST Refund

The free-look period—generally 15 to 30 days—allows customers to cancel a newly purchased policy if unsatisfied. In such cases, insurers are required to refund the premium plus GST, minus charges like stamp duty, medical test fees, or the cost of days already covered.

Here’s an example:

Suppose you bought a life insurance policy on September 12 with an annual premium of ₹30,000 + 18% GST.

You decide to cancel it within the free-look window, say in early October.

The insurer will refund your premium plus GST, minus deductions.

“Since, at the time of return, the supply of insurance is not fulfilled, the GST should be refunded by the insurer along with the premium. A credit note should be issued for the return of GST.”

However, this refund process is linked to cancellation, not to the GST rate reduction itself.

Should You Wait Until September 22 to Buy New Policies?

Many insurance companies have already started adjusting their offerings to help customers benefit. For instance, some insurers, like ICICI Lombard, are allowing customers to buy a policy today but activate coverage from September 22, ensuring the premium is GST-free.

This means:

If you’re planning to buy a new life or health insurance policy, it may be wise to wait until after September 22 (or choose an insurer offering deferred start dates).

Doing so ensures that you avoid paying GST altogether.

Key Takeaways for Policyholders

No GST Refund for lump-sum multi-year premiums already paid.

Future installments due after September 22 will be GST-free.

Grace period payments for due dates before September 22 will still attract 18% GST.

Free-look cancellations can result in GST refunds (subject to deductions).

New buyers should ideally start policies on or after September 22 to avoid GST.

The GST exemption on life and health insurance premiums is a major positive step for policyholders, reducing the cost of essential financial protection. However, clarity is crucial—especially for those who have already prepaid their policies.

While there’s no refund for GST already paid, future transactions will benefit from the exemption. Policyholders planning new purchases or renewals should time them wisely to make the most of the 0% GST regime.