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Understanding GST Input Credit on Insurance Premiums

Learn how GST input credit applies to insurance premiums, with the GST 2.0 Reform making individual life and health premiums GST-free

Written by : Knowledge Center Team

2025-12-17

2689 Views

7 minutes read

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GST has simplified taxation for many goods, but its application to insurance remains complex and continues to raise practical questions. 

How does the GST apply to your insurance premium? Is it possible for you to claim the input tax credit on the GST paid on the insurance premium? Do you need to deduct the GST amount while claiming deductions under sections 80C and 80D?
 

We answer these and many other such questions in this article:

Key Takeaways

  • Companies may avail GST input credit over insurance premiums if the insurance is business-related

  • Personal insurance policies, whether health or life, do not qualify for input tax credit

  • To avail input credit, ensure the insurance service is utilised in the course of business, and proper GST invoices are maintained

  • Input credit can lower the overall tax burden, making insurance cheaper for businesses

  • It's important to remain current with GST rules, as eligibility criteria for input credit may change

What is the Input Tax Credit for Insurance?

Input Tax Credit (ITC) in insurance is an essential component of the Goods and Services Tax (GST) framework that enables businesses to lower their tax liability in a systematic way. When a business purchases goods or services for its operations and pays GST on those purchases, referred to as inputs, it becomes eligible to claim that tax amount as a credit. This credit can then be used to reduce the GST payable on the business’s own sales or outward supplies. In effect, the business is not taxed repeatedly at every stage, but only adjusts the tax already paid against the tax it owes, resulting in a more accurate and fair calculation of its net tax liability.

This mechanism plays a crucial role in eliminating the cascading effect of taxation, where previously tax was charged on top of another tax as products moved through the supply chain. By allowing a seamless flow of credit from one stage to the next, ITC ensures that tax is levied only on the value a business adds, such as processing, manufacturing, marketing, or distribution, rather than on the entire transaction value each time goods or services change hands. This not only promotes transparency and efficiency but also helps reduce overall costs for businesses, supporting smoother functioning, better compliance, and a more integrated national tax system.

GST Application on Life Insurance Premiums

Individual life and health insurance premiums were previously subject to 18% GST. Following the 56th GST Council decision (3 Sep 2025), individual life and health premiums will be billed at nil GST from 22 Sep 2025.

Also, how GST applies to insurance premiums depends on when your premium payment is due. From 22 September 2025, individual life & health insurance premiums are at 0% GST. 

You basically need to consider two cases:

  • Premiums (new or renewal) due on or after 22 September 2025 → Nil GST applies. 

  • Premiums due before 22 September 2025 → still subject to 18% GST, even if you pay them after that date.

Life insurance policies are generally of the following three types:

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Did You Know?

Indians believe they’re insured for 6.4 times their income, but in reality, their coverage averages just 3.1 times- a major protection gap.
 

Source: Business Standard

Guaranteed Returns 34K

Why Don’t You See GST on Your ULIP Premium Receipt?

Earlier, ULIP premiums didn’t show GST on the receipt because the 18% tax applied only to mortality and other charges, which were deducted from your unit balance instead of the premium. This often caused confusion for policyholders when tallying costs. With the rollout of GST 2.0 on 22 September 2025, all individual life insurance products, including ULIPs, are now exempt from GST. This means neither premiums nor associated charges attract GST anymore. As a result, your premium receipt and unit balance no longer carry any GST deductions, making the cost structure clearer and lighter for policyholders.

Input Tax Credit (ITC) on Insurance Under GST 

From 22 September 2025, individual life and health insurance premiums are exempt from GST- meaning nil GST is levied on these premiums. Because of this, individuals cannot claim any GST Input Tax Credit (ITC) on insurance premiums, since no GST will be paid. Insurers themselves are required to reverse any accumulated ITC that they claimed prior to this exemption. ITC on insurance premiums for employees in the form of Group insurance or employer-provided benefits (i.e., corporate/group plans) continue to attract GST, and in those cases, the usual rules for GST and ITC still apply.

Claiming GST on Life Insurance Premium as a Deduction

From 22 September 2025, individual life and health insurance premiums are exempt from GST. You can still claim the premium you’ve paid for life insurance under Section 80C up to ₹1.5 lakh per year (old tax regime). 

For health insurance, premiums are deductible under Section 80D as before. 

Since there’s nil GST being charged now, there's no need to consider claiming or separating out GST in your deductions (because GST isn’t part of the premium anymore).

Final Words

Understanding how GST and Input Tax Credit apply to insurance premiums is key to making informed financial decisions. While individual life and health insurance premiums are now exempt from GST, eliminating ITC for individuals, businesses can still benefit from ITC in specific, business-linked or legally mandated insurance cases. By staying updated with GST rules, maintaining proper documentation, and knowing where ITC applies, both policyholders and businesses can optimise costs and remain compliant in the changing tax landscape.

Glossary

  1. Goods and Services Tax (GST): A nationwide tax applied on goods and services, replacing multiple indirect taxes
  2. Input Tax Credit (ITC): A mechanism that allows businesses to use the GST paid on purchases to reduce the GST payable on their sales
  3. Unit Linked Insurance Plan (ULIP): A life insurance product that combines insurance coverage with market-linked investments.
  4. Term Insurance: A pure risk life insurance policy that provides coverage for a fixed term and pays benefits only on death.
  5. Endowment Plan: A life insurance plan that offers both insurance cover and savings, paying out on maturity or death.
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Uncertain About Insurance?

FAQs

Input Tax Credit (ITC) under GST means that a business (or insurer) can claim credit for the GST it pays on its purchases (inputs) and use that credit to reduce its GST liability on sales (outputs).

As of September 22, 2025, the GST rate on individual life and health insurance premiums has been reduced from 18% to 0%.

No, for individual life and health insurance policies, since the premiums are now exempt (0% GST), insurers cannot use ITC to offset GST on these premiums.

From 22 September 2025, individual life and health insurance premiums became GST-exempt. Insurers now must reverse ITC on many input services (brokerage, commission, admin, etc.) because the output service (insurance premium) is exempt. The CBIC clarified that only reinsurance-related services remain eligible for ITC; for most other inputs, ITC has to be reversed. Any unused credit up to 21 September 2025 could be used, after which a reversal is required.

Yes, reinsurance services continue to be exempt, and ITC on them is allowed. For co-insurance, the GST Council has clarified that insurers can claim ITC on the GST paid for co-insurance premiums, under the correct apportionment rules.

After 22 September 2025, for individual life and health insurance, ITC on commissions, brokerage, and many input services is disallowed because the premium is exempt. When supplies are exempt, insurers must reverse proportionate ITC for common inputs (rent, IT systems, professional fees, etc.). If conditions under Section 16 of the CGST Act are not met (e.g., no valid invoice, or the supplier hasn’t paid tax), the insurer cannot claim ITC.

There are 2 different scenarios:

  • For individual policyholders, GST on premiums for personal life and health insurance has been reduced to 0% (exempt) effective 22 September 2025. 

  • For businesses (insurers or other registered persons), the output service of individual life/health insurance being exempt means they cannot claim input tax credit (ITC) on related inward supplies (commissions, support services) for those policies.

For individual health insurance: No. Since 22 September 2025, individual health insurance premiums are GST-exempt (0% GST), so there is no GST paid and no ITC can be claimed.

For businesses/group policies: ITC is generally allowed only when the health insurance is mandated by law for employees or directly linked to business operations. If it’s optional or for personal benefit, ITC cannot be claimed.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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