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Life insurance is a cornerstone of financial security, and so are endowment policies. Such policies offer financial protection, savings, and guaranteed payouts. For many years, GST on endowment policy premiums has made them slightly expensive. Earlier, one had to pay GST along with their premium, due to which a portion was taken away as tax. GST reforms 2025 have addressed this issue for good. ...Read More
Trust of 20+ Years in Industry
Written bySumit Narula
Investment Writer
Published 23rd February 2026
Reviewed byPrateek Pandey
Last Modified 24th February 2026
Investment Expert
GST Applicability on Endowment Policies Before 2025
Goods and Services Tax (GST) was enforced on endowment policies in July 2017. This GST applicability on endowment policy increased the overall cost of the plan, with mandatory GST on insurance premium. As a result, it became a critical factor in a customer’s total outflow.
Thus, understanding how GST worked previously helps customers assess the financial benefits of the full exemption that became effective, starting September 22, 2025.
In the case of pure protection plans, GST was applicable to the full premium. Unlike pure protection plans, traditional plans (like endowment policies) had a nuanced tax structure. It was built based on a deemed ‘taxable value’ portion of the premium.
Though the standard GST rate was 18%, it applied only to a percentage of the premium. As a result, the effective GST rate on the total premium was relatively low.
The following are the GST rates on endowment policy premium components.
| Premium Component | Taxable Value | GST Rate | Effective GST Paid (on Total Premium) |
|---|---|---|---|
| First-year premium | 25% of premium | 18% | 4.5% (18% of 25%) |
| Renewal premium | 12.5% of premium | 18% | 2.25% (18% of 12.5%) |
| Single premium endowment | 10% of premium | 18% | 1.8% (18% of 10%) |
This framework was a major factor in GST on traditional plans.
GST on First-Year Premiums
Consumers paid a 4.5% GST rate on the first-year premium, which was 18% over and above 25% tax applicable to the total premium. This increased the initial premium, which often influenced customers' long-term buying decisions.
GST on Renewal Premiums
Gst on renewal premium is significantly lower than that on the first-year premium. GST applicable to the renewal amount is 2.25%. It is calculated by applying an 18% GST rate on the 12.5% of the premium.
Although the amount is lower than the first-year cost, this tax adds up significantly in the long term. Specifically, the cost will be a factor to consider over a policy span of 15-20 years.
Although the amount is lower than the first-year cost, this tax adds up significantly in the long term. Specifically, the cost will be a factor to consider over a policy span of 15-20 years.
Example: How GST Increased Premium Cost (Pre-2025)
The following data illustrates the financial impact of the GST premium cost.
| Particulars | Before GST | After GST (Pre-2025) |
|---|---|---|
| Annual premium | ₹50,000 | ₹50,000 |
| GST rate (renewal) | 0% | 2.25% |
| GST amount | ₹0 | ₹1,125 |
| Total payable | ₹50,000 | ₹51,125 |
While the yearly extra cost seems small, it compounds over the full policy term, making the plan significantly more expensive over two decades.
GST Exemption on Endowment Policy (Effective 22 Sept 2025)
This new rule by the GST council introduced a major consumer-friendly change in GST on life insurance.
Starting 22 September 2025, individual endowment policies are fully GST-exempt. This means 0% GST applies to first-year, renewal, and single-premium payments, making traditional life insurance more accessible and affordable for everyone.
Note: GST exemption applies to individual plans only. Corporate or group policies still attract standard GST charges, typically at 18%.
What Has Changed Under New GST Rules?
This reform brings clarity and affordability:
This GST reform has effectively removed a long-standing cost barrier for customers, simplifying the overall purchase decision.
- GST on premium becomes 0% for all individual endowment plans
- All premium types (first-year, renewal, single) qualify for this exemption
- The rule applies broadly to all individual life and health policies (term plans, ULIPs, whole-life plans, etc.)
- Group policies, like employer-sponsored schemes, remain taxable at 18%
This GST reform has effectively removed a long-standing cost barrier for customers, simplifying the overall purchase decision.
Policies Covered Under GST Exemption
The exemption is comprehensive for the individual category:
| Covered (0% GST from Sept 22, 2025) | Not Covered (Still Taxable at 18% GST) |
|---|---|
| Individual endowment plans | Corporate endowment plans |
| Individual guaranteed savings plans | Group life insurance |
| Individual whole-life plans | Employer-sponsored schemes |
| Individual traditional policies | General Insurance (Motor, Property, etc.) |
| Individual Term Insurance & ULIPs | Group Health Insurance |
Example: Cost Comparison Before and After GST Exemption
The impact on the annual premium is immediate and significant:
| Particulars | Pre-2025 (Renewal Premium) | Post-2025 (Any Premium) |
|---|---|---|
| Annual premium | ₹50,000 | ₹50,000 |
| GST on renewal | 2.25% | 0% |
| GST amount | ₹1,125 | ₹0 |
| Total payable | ₹51,125 | ₹50,000 |
| Annual Savings | - | ₹1,125 |
Impact of GST Removal on Endowment Policyholders
The GST exemption on endowment policy of 2025 has improved the long-term ownership experience. Owing to the reduction in existing policy premiums, consumers can stay committed to their policies.
This has directly addressed the issue of high policy lapse driven by unaffordability, as they no longer include an additional GST component, resulting in lower premiums.
Savings and Affordability Benefits
The shift to zero GST from the new GST rules has brought immediate and substantial financial relief.
Need to learn additional benefits of life insurance? Understand Understand Life Insurance Tax Benefits here.
- Direct cost reduction: The GST exemption policies has reduced the annual premium outflow by 2.25% (for renewal premiums) and 4.5% (for first-year premiums). So, if an endowment policyholder used to pay an annual renewal premium of ₹ 50,000,as per the GST exemption policies, it saves them ₹1,125 annually.
- Enhanced cash flow: Removing the tax burden has freed up household funds. So, the money spent previously can now be used to meet the immediate needs of the households. You can otherwise fund your emergency savings or channel it back into the policy through top-ups (if permitted).
- Encouraged Commitment: Financial pressure is a key factor in the premature surrender of policies. By making the yearly payments cheaper, this has encouraged policyholders to stay invested for the full term (15-25 years). This way, GST exemption on endowment policy has ensured the policyholders receive the full maturity benefit.
- Increased Accessibility: The lower starting cost breaks down a major barrier for new buyers. With GST reforms long-term protection has become more valuable, and savings products have become more accessible to middle- and lower-income groups.
Need to learn additional benefits of life insurance? Understand Understand Life Insurance Tax Benefits here.
How It Improves Return on Investment?
While endowment policies offer guaranteed returns, GST removal has effectively enhanced the policy’s net yield for the customer. Additionally, there are other benefits, such as:
- Better yield calculation: The return on investment (ROI) is calculated based on the difference between the final maturity value and the total premiums paid. When the total outflow (premium + tax) reduces, the resulting ROI automatically increases. So:
ROI= (Maturity payout - Total premiums paid)/(Total premiums paid)*100
Since the ‘total premiums paid’ is lower, the percentage of return is effectively higher. - Compounding benefit: The annual tax savings are compounded as per new gst on endowment policy. For example, a 20-year policy can now save ₹22,500 for a ₹50,000 premium, indicating substantial savings. That means the compounding benefit can directly boost wealth accumulation.
- Higher savings allocation: While paying a premium, a portion covers mortality risk, and the rest goes into savings. With GST eliminated, a large portion of this can now be preserved for the savings component, thus maximizing long-term compounding benefits.
- Predictable long-term value: An Endowment policy holder can plan their finances knowing that their premiums are fixed, with no tax added, ensuring greater certainty.
Conclusion
The GST exemption on endowment policy has fundamentally changed the economics of traditional savings-cum-protection plans. It ensures lower outflow, better value, and sustained coverage for customers. It indicates that the 0% GST makes these essential benefits more accessible.
So, make the right decision by choosing endowment plans. Explore Endowment Plans from Axis Max Life Insurance.
Advantages of Demand Deposit
Here are some of the essential advantages of a demand deposit account:
- Accessibility: Funds in the demand deposit are instantly accessible and can be withdrawn at any time on demand. Moreover, you do not need to notify the bank or seek approval to withdraw funds.
- Joint Account: Individuals can open joint accounts that allow two or more people to operate the same account. Joint holders can freely make deposits and withdrawals from the demand deposit unless specific restrictions are made.
- Easy Transactions: The bank allows you to have a considerable number of transactions. In the case of savings account, deposits/withdrawals made beyond a specific limit over a pre-determined period are not allowed or chargeable. No such limitations are applicable to current account.
- Simplified Transfers: Depositors can initiate electronic or offline transfer of deposits as per requirement. Available options to make such withdrawals/transfers include UPI, netbanking, cash withdrawals at ATM or branch, cheque-based transfers, etc.
Limitations of Demand Deposit
Although demand deposits offer several benefits, they come with a few limitations, which are as follows:
- Low Interest Rate: Demand deposits often offer lower interest rate compared to time deposits because of their relatively high liquidity.
- Service Fees and Minimum Balance: Banks usually charge a fixed fee for services to their customers. But, typically a minimum balance needs to be maintained in the case of some demand account. Penal charges are applicable if the required minimum balance is not maintained.
Advantages of Time Deposit
Given below are some of the benefits of a time deposit:
- Assured Returns: Time deposits offer assured returns, as they do not depend on market fluctuations. This ensures predictability of the maturity amount that the depositor will receive at the time of maturity.
- Flexible Interest Credits:
- Tax Benefits: Tax deductions are available for investment plans such as tax-saving FD for up to ₹1.5 lakh in a financial year (only available under the old regime). Other types of term deposits currently do not offer this benefit.
- Safe Investments: Time deposits are a safe investment option because financial institutions are subject to oversight by the Reserve Bank of India (RBI). Moreover, funds in time deposits are insured by DICGC, a government approved body up to an amount of ₹5 lakh (for both the principal and interest amounts).
Limitations of Time Deposits
Here are some key drawbacks of a time deposit:
- Low Liquidity: A time deposit is made for a specific duration, and withdrawals before maturity incur a penalty. This limits the liquidity of this type of deposit.
- Taxable Returns: Time deposit interest earnings are taxable as per the income tax slab of the depositor. A five-year tax saver time deposit account can help save tax under the old tax regime. However, its returns are taxable as per the same income tax rules as other time deposits.
FAQs on GST and Endowment Policy
What is the gst rate on endowment policy?
Before 2025, GST was 4.5% on first-year premiums and 2.25% on renewals. From 22 Sept 2025, individual plans are fully exempt from GST.
Is GST applicable on all life insurance policies?
No. Individual plans are exempt from 2025, but group policies remain taxable.
Does GST apply to maturity benefits in endowment plans?
No. GST applies only to premiums. Maturity benefits are exempt under section 10(10D), provided the premiums paid do not collectively exceed 10% of the sum assured for policies issued after April 1, 2012.
How does GST exemption affect endowment policyholders?
It reduces total annual premium and improves wealth accumulation over time.
Will I get a refund for GST paid on previous premiums?
No. With effective from 22 Sept 2025, no GST levies on premiums payable for endowment plans. The new GST laws apply to ongoing and new policies only. So, no GST refund applies here.
Does GST apply to single premium endowment plans?
Effective 22 Sept 2025, zero GST applies to individual endowment (not group) policies.
How is GST calculated on endowment policy premiums?
GST was applied on a fixed percentage of the premium. A flat 18% GST was applicable to 25% tax on the first-year premium and 12.5% on renewal premiums.
Are group endowment policies also GST exempt?
No. Only individual endowment policies are exempt; group or corporate plans still attract standard GST rates.
How does the GST exemption impact policy renewals?
Renewal premiums paid after 22 Sept 2025 become fully GST-free, reducing yearly costs.
Do I need to update my policy after the GST exemption?
No. You do not need to updated your policy. Insurers automatically adjust the GST on premium invoices; customers do not need to make any changes.
ARN: Feb26/Bg/18SN1
Sources:
https://www.indiatoday.in/business/story/no-gst-on-insurance-paneer-indian-breads-life-saving-medicines-from-september-22-2781597-2025-09-03
https://www.thehindu.com/business/Industry/exemption-of-gst-from-life-and-health-insurance-premium-to-make-products-affordable-insurers/article70011488.ece
https://themunim.com/gst-on-lic-premium/?utm_source=google&utm_medium=organic
https://www.indiatoday.in/business/story/no-gst-on-insurance-paneer-indian-breads-life-saving-medicines-from-september-22-2781597-2025-09-03
https://www.thehindu.com/business/Industry/exemption-of-gst-from-life-and-health-insurance-premium-to-make-products-affordable-insurers/article70011488.ece
https://themunim.com/gst-on-lic-premium/?utm_source=google&utm_medium=organic
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