GST on ULIPs Explained: What Policyholders Should Know?

GST on ULIPs Explained: What Policyholders Should Know?

Discover how ULIPs with 0% GST can help you protect your family while growing wealth steadily over time

Written by : Knowledge Centre Team

2025-12-02

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7 minutes read

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Unit Linked Insurance Plan (ULIP) offer a combination of life protection and investment growth, making them a popular choice for individuals planning long-term financial goals. It allows you to build wealth through market-linked funds while ensuring financial security for your family. However, understanding the tax implications, especially GST, is essential to evaluating the actual cost of a plan. Recent changes in GST rules have made ULIP more attractive, influencing how much of your premium is allocated to investment and how efficiently your money can grow. Being aware of these updates can help you make informed financial decisions.

In this blog, let’s explore the changes to GST in ULIP policies and their impact on your premium and long-term returns.

Key Takeaways

  • ULIP offer dual benefits of life insurance protection and market-linked wealth creation under a single plan

  • GST on ULIP premiums is 0% for policies purchased on or after 22 September 2025, making investments more cost-effective

  • The removal of GST allows more of your premium to be invested, improving compounding and long-term fund growth

  • Choose funds based on your risk profile, whether equity for growth or debt/balanced for stability

  • Regularly review and rebalance your ULIP fund allocation to stay aligned with your financial goals and market conditions

Understanding GST on ULIP Plans

From 22 September 2025, there will be no GST charged on ULIP premiums. Earlier, ULIPs carried an 18% GST, which increased the overall cost of the policy. With GST removed, more of your premium will now go directly into your investment fund, helping your money grow better.

This step aims to make ULIP more affordable and encourage more people to choose life insurance, along with long-term wealth creation. It supports financial planning for goals like retirement, children’s education, or building a future safety net.

However, note these points carefully:

  • Only ULIP purchased on or after 22 September 2025 will get the 0% GST benefit
  • Policies bought before this date will continue to follow the old GST structure

How Does the Removal of GST Impact ULIP Premium?

The removal of GST means your full premium now goes directly into your ULIP. More of your money stays invested from the start, supporting smoother and stronger long-term growth. Here’s a closer look at how this change influences your returns, investment value, and overall cost of owning a ULIP.

  • Higher Invested Amount: Since GST is no longer charged on the premium, more money is allocated to the fund right from the beginning. More investment upfront creates stronger compounding and potentially higher wealth creation over time.
  • Improved Compounding Benefits: When more money is invested every year, the compounding effect becomes stronger. Even a small increase in the amount invested can lead to a noticeable difference over long periods. The removal of GST helps your ULIP grow more efficiently, particularly for long-term goals such as retirement or your children’s education.
  • Better Cost-Effectiveness: Without GST, the overall cost of owning a ULIP becomes lower. This makes the policy more budget-friendly and attractive for first-time investors. It also encourages disciplined financial planning, as you can invest without worrying about additional tax deductions from the premium.

For Example:

 Let’s assume you invest ₹5,00,000 every year in a ULIP.

  • Earlier, 18% GST was added to the premium, increasing your total payment

  • Now, with GST removed, you pay only the premium itself, no extra tax

ParticularsEarlier (Before 22 Sept 2025: GST @18%)Now (From 22 Sept 2025: GST @0%)
Annual Premium₹5,00,000₹5,00,000
GST Charged₹90,000₹0
Total Amount You Paid₹5,90,000₹5,00,000

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Who Can Benefit the Most From ULIPs After the GST Removal?

With GST removed, a larger share of your premium now gets invested, helping your money grow better over the long term. This makes it appealing to a wider range of individuals with different financial goals. Here are some individuals who can benefit the most from the ULIP after the GST removal.

  1. First-Time Investors: For first-time investors, ULIP are now easier to start with. Since your entire premium is allocated toward life cover and investment, you can start growing your wealth and protecting your family’s future without needing a large budget.
  2. Young Working Professionals: Young earners benefit the most from compounding. With lower costs and long investment horizons, ULIPs can help young professionals build a strong financial foundation. Whether the goal is early retirement, owning a home, or long-term wealth creation, starting early makes a big difference.
  3. Middle-Class Families with Dependents: Families looking for both protection and savings can find ULIP useful. A single policy offers life cover along with market-linked growth. This helps parents plan for major life goals, such as children’s education, marriage expenses, and retirement, while keeping the policy affordable.
  4. Self-Employed and Business Owners: Individuals who manage their own income streams often look for flexible financial solutions. ULIPs provide life protection and wealth-building in a single plan, without requiring employer-based benefits. With GST removed, maintaining the policy becomes easier and more cost-effective over the long term.
  5. Individuals Looking to Grow Savings Gradually: Individuals who prefer systematic and disciplined investing can benefit from ULIP. Even smaller, regular contributions can grow meaningfully over time due to compounding, helping build financial security at a comfortable pace.
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Did You Know?

ULIP has become a key offering for many life insurers, making  about 42% of their total premium collections in FY25.

Source: Money Control

iSelect Guaranteed Future Plus

Factors to Consider Before Buying a ULIP Plan After the GST Update 

Even with the GST exemption, choosing the right ULIP still requires thoughtful evaluation. Before you finalise your ULIP plan, review the following key aspects to ensure your policy aligns with your financial goals and risk appetite.

Assess Your Financial Goals and Protection Needs

Before investing, clarify why you are purchasing a ULIP. Determine whether your priority is wealth creation, child education planning, retirement security, or simply ensuring family protection. Understanding this helps you choose the right premium amount, sum assured, and fund allocation between equity and debt.

Compare Policy Features and Charges

Even with GST adjustments, ULIP charges vary across insurers. Compare policies based on:

  • Fund options

  • Premium payment flexibility

  • Switching and partial withdrawal rules

  • Overall cost structure and performance history

  • Choosing a transparent and cost-effective plan ensures better compounding over time

Select the Right Type of ULIP Fund

Choosing the right fund option determines how your money grows and how much risk you take while investing

  • ULIPs allow you to invest in equity, debt, or balanced funds

  • High equity allocation suits long-term wealth creation with higher risk

  • Debt or balanced funds work better for conservative investors

  • Match the fund strategy to your risk tolerance and investment horizon

Review the Claim Settlement Ratio of the Insurer

A high claim settlement ratio indicates reliability in honouring life cover claims. This ensures your family receives financial support smoothly in case of unforeseen circumstances. At Canara HSBC Life Insurance, we have a Claim Settlement Ratio (CSR) of 99.43%, ensuring that the family’s claims are settled smoothly.

Consider Policy Duration and Lock-In Requirements

ULIP come with a mandatory 5-year lock-in period, which means you cannot withdraw funds during this time. Align the policy term with your long-term goals to avoid liquidity stress. Longer durations generally yield better compounding benefits.

Enhance Coverage with Riders

If your investment ability increases due to this amendment, consider adding riders, such as critical illness, accidental death, or premium waiver. These optional benefits strengthen your financial protection without needing a separate policy.

Final Thoughts

GST on ULIP policy is more cost-effective and appealing for long-term financial planning. With a larger share of your premium now contributing directly to market-linked investments, ULIPs offer improved growth potential along with essential life protection. However, choosing the right insurer and plan structure is key to maximising these benefits. Focus on your financial goals, risk appetite, policy charges, and fund performance while making a decision. 

Glossary

  • Claim Settlement Ratio (CSR): Percentage of claims an insurer settles, showing its reliability in paying policy benefits
  • Lock-in Period: Minimum time during which you cannot withdraw or surrender your investment
  • Riders: Optional add-ons to enhance your insurance coverage with extra benefits
  • Equity: Investment in company shares with higher growth potential and higher risk
  • GST (Goods and Services Tax): A unified tax on goods and services applied across India
glossary-img
Uncertain About Insurance?

FAQs

A ULIP (Unit Linked Insurance Plan) is a financial product that combines life insurance protection with investment in market-linked funds such as equity or debt.

No. The 0% GST benefit applies only to ULIP policies purchased on or after 22 September 2025. Policies bought earlier will continue under the old GST structure.

Since no tax is deducted from the premium, a larger portion of your payment is invested, improving compounding and long-term fund value growth.

Yes. ULIPs enable fund switching between equity, debt, or balanced options, allowing you to adjust your investment strategy based on market conditions or changing risk preferences.

ULIPs have a mandatory 5-year lock-in period, during which withdrawals are not allowed. Staying invested for an extended period generally leads to better wealth creation.

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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