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Retirement is not just a life stage. It is a process that involves making several financial decisions carefully. You need to understand the taxes applicable to pension and annuity products, including GST on pension, to keep a track of your savings to secure a trouble-free retirement. These will help you determine your pension plan payments, savings, and retirement income....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
What Is GST and How Does It Apply to Pension Plans?
GST (Goods and Services Tax) is an indirect tax applicable to goods and services, including insurance, in India. Traditionally, pension plan premiums included the GST component, adding to the total cost of retirement savings.
Before GST reforms came into effect, two different GST rates were applied to the first-year and renewal premiums of individual pension plans. However, September 22, 2025 onwards, the government removed GST from annuity plans and personal pensions. This reduced the total annual premium for pension plans, making them more affordable for everyone than ever before.
However, only individual personal plans are getting GST exemption. Since group pension products are categorised differently, they still have GST applicable.
Why GST Applies to Pension Contributions and Annuity Plans?
Different rates of GST on annuity policies and pension plans have been applicable in India for a long time. GST rates have been typically applicable to fund management, policy regulation, and mortality charges, etc. Resultantly, customers had to pay higher annual premiums than what they contributed to their pension fund.
Annuity plans for senior citizens also became more expensive due to applicable GST rates. This made these financial safety products expensive, gradually reducing the number of new subscribers. To encourage better retirement savings, the government has provided a GST exemption on individual pension and annuity plans.
This change supports stronger retirement planning habits. To know more, explore pension plans thoroughly.
GST Rates on Pension and Annuity Plans
Multiple GST charges on pension plans were applicable in the past. September 22, 2025 onwards, GST reforms have changed the entire structure with respect to insurance plans. To understand the differences, let us take a look at both timelines.
GST Rate on Purchase of Pension Plans
Before the GST exemption came into effect, the following two different GST rates were applicable to pension plan premiums:
These rates slightly varied depending on the insurance company’s structure. Moreover, these applicable GST rates increased the annual premium. For example, if you were to purchase a ₹30,000 pension policy, you would pay 1,350 as GST on top of the base premium.
Effective from 22 September 2025, the updated GST rates applicable to pension plans are:
This change makes the cost of buying a pension plan simpler and more transparent than before.
- 4.5% GST on first-year premium
- 2.25% GST on renewal premiums
These rates slightly varied depending on the insurance company’s structure. Moreover, these applicable GST rates increased the annual premium. For example, if you were to purchase a ₹30,000 pension policy, you would pay 1,350 as GST on top of the base premium.
Effective from 22 September 2025, the updated GST rates applicable to pension plans are:
- 0% GST on individual pension plans
- 0% GST on riders attached to individual pension plans
- GST continues for group-based pension products
This change makes the cost of buying a pension plan simpler and more transparent than before.
GST on Pension Payouts and Withdrawals
Note that pension payouts and withdrawals are not treated as services. So, GST on payouts from these plans has been treated as income, and so standard income tax slab rates are applicable.
Only the pension plan premiums were taxed earlier. Now, with the GST on pension plan - 2025 update, premiums of individual plans also do not attract GST.
Only the pension plan premiums were taxed earlier. Now, with the GST on pension plan - 2025 update, premiums of individual plans also do not attract GST.
Comparison Table - GST on Pension vs Other Insurance Products
| Insurance Product Type | GST Before September 2025 | GST After September 2025 | Remarks |
|---|---|---|---|
| Individual Pension Plans | 4.5% first year, 2.25% renewal | 0% | Advantage for retirement savings |
| Individual Annuity Plans | GST applied on premiums | 0% | Makes annuity purchase cheaper |
| Riders under Pension Plans | GST applied | 0% | Only for individual plans |
| Group Pension / Employer Plans | GST applied | GST continues | Not included in exemption |
| Traditional Life Insurance | GST applicable | GST applicable | Only pension/annuity got exemption |
The reduced GST on retirement plans improves the overall affordability, which allows more individuals to invest more confidently.
GST Exemptions for Pension Schemes
There are various types of GST exemption on pension schemes, such as
Government Pensions and NPS Contributions
As noted earlier, GST does not apply to payouts from government pension schemes, including the National Pension System (NPS), as investments in these schemes are not considered services. Therefore, the 2025 GST reforms do not affect government pension and NPS contributions. Browsing websites of companies like Axis Max Life can help you learn about retirement tax benefits.
Private Pension Products and GST Applicability
Private pension plans by insurance companies earlier attracted GST. Now, with the 2025 GST reforms out, individual pension plans are exempt from GST. This freedom from tax-related anxiety leads to an increase in demand for annuity, deferred pension, and guaranteed lifetime income plans.
The exemption does not extend to:
These investments are still under the standard GST rules.
The exemption does not extend to:
- Pension schemes financed by employers
- Corporate group retirement products
- Superannuation schemes funded by employers
These investments are still under the standard GST rules.
How GST Affects Pension Returns and Benefits?
Before 2025 GST reforms were out, the premiums payable for both new and renewal of existing pension plans attracted GST at 4% and 2.25%, respectively. Resultantly, the amount invested was lower than the total premium paid. Now, with 0% GST, the full premium is invested in the pension fund. Retirement savings can therefore grow significantly over time.
Impact on Maturity Value and Monthly Payout
The total investment and the growth rate are the factors that primarily determine the maturity value. Since GST has been reducing the investable amount, these exemptions now allow savings to grow even higher, thereby increasing annuity payouts or monthly income.
Example: GST Calculation on a Pension Plan
GST on pension plans is explained here.
Assume the base premium of a pension plan is ₹30,000 per year.
Before 22 September 2025
- Base premium: ₹30,000
- GST 4.5% (first year): ₹1,350
- Total amount paid: ₹31,350
Out of the total amount paid, only ₹30,000 goes towards the pension fund. ₹1,350 was paid as GST.
After 22 September 2025
- Base premium: ₹30,000
- GST: ₹0
- Total amount paid: ₹30,000
Now, the entire ₹30,000 goes towards investment in your pension fund.
Sample Calculation: Regular vs Single Premium Pension
| Plan Type | Base Premium | GST Before 2025 | GST After 2025 | Effective Contribution |
|---|---|---|---|---|
| Regular Premium Plan | ₹30,000 yearly | ₹1,350 | ₹0 | Higher corpus |
| Single Premium Plan | ₹2,00,000 one-time | ₹9,000 | ₹0 | Better long-term growth |
This shows how the GST exemption improves real investment value.
How to Choose a Pension Plan Considering GST and Tax Benefits?
When choosing a pension plan, look at more than just GST savings. Consider long-term value, payout options and flexibility.
- Select individual pension plans because they are GST-free.
- Consider various annuity options: lifetime annuity, increasing annuity, and joint life annuity
- Look at the riders that are currently GST-free and can improve your protection
- Learn about tax advantages
- Consider various features of different pension plans from trustworthy insurers
- Make sure the product fits your retirement age and income requirements
- Review charges such as allocation charges, fund management charges and policy administration fees
After understanding pension structures, look for offers extended by various insurers. However, you can also plan your retirement with Axis Max Life.
FAQs on GST and Pension Plans
Is GST applicable on pension plans in India?
No. W.e.f. 22 September 2025, premiums paid for individual pension and annuity plans are GST-free. However, group pension schemes (provided by employers) still attract the same GST rates as before.
Which pension plans qualify for GST exemption?
The individual pension plans and annuity policies purchased from insurers in India offer GST exemption.
What was the GST rate on pension plans before 2025?
On individual pension plans, GST rates applied at 4.5% on the first-year premium and 2.25% on renewal premiums.
Does GST apply to annuity payouts?
No. GST is not charged on pension income or annuity payouts. These payouts are treated as income, and therefore income tax slab rates apply here.
How does GST exemption impact pension plan affordability?
GST exemption on pension plans lowers total investment costs and increases the actual amount invested in your pension fund.
Is GST applicable to NPS or government pension schemes?
No. GST was never applicable to NPS or government pension schemes.
Are pension plans eligible for 0% GST?
Yes. As per 2025 GST reforms, GST does not apply to premiums paid for all individual pension plans.
Does GST apply to pension renewals after 2025?
No. Individual pension renewals after GST-free w.e.f. 22 September 2025.
Will GST apply to employer-contributed pension schemes?
Employer or group pensions are still taxable at 18%.
ARN: Feb26/Bg/19SN1
Sources:
https://www.business-standard.com/amp/finance/personal-finance/retired-and-saving-cbdt-s-new-guide-helps-you-maximise-tax-benefits-125052600908_1.html
https://www.livemint.com/money/personal-finance/income-tax-bill-2025-from-ups-benefits-to-commuted-pension-rules-top-5-things-every-pensioner-must-know-11754981397160.html
https://www.moneycontrol.com/news/business/health-and-life-insurance-to-get-cheaper-from-sept-22-as-gst-council-scraps-18-tax-13518206.html
https://www.livemint.com/money/personal-finance/income-tax-bill-2025-from-ups-benefits-to-commuted-pension-rules-top-5-things-every-pensioner-must-know-11754981397160.html
https://economictimes.indiatimes.com/wealth/insure/gst-2-0-explained-when-will-new-gst-rate-for-life-health-insurance-be-applicable/articleshow/123692515.cms
https://www.business-standard.com/amp/finance/personal-finance/retired-and-saving-cbdt-s-new-guide-helps-you-maximise-tax-benefits-125052600908_1.html
https://www.livemint.com/money/personal-finance/income-tax-bill-2025-from-ups-benefits-to-commuted-pension-rules-top-5-things-every-pensioner-must-know-11754981397160.html
https://www.moneycontrol.com/news/business/health-and-life-insurance-to-get-cheaper-from-sept-22-as-gst-council-scraps-18-tax-13518206.html
https://www.livemint.com/money/personal-finance/income-tax-bill-2025-from-ups-benefits-to-commuted-pension-rules-top-5-things-every-pensioner-must-know-11754981397160.html
https://economictimes.indiatimes.com/wealth/insure/gst-2-0-explained-when-will-new-gst-rate-for-life-health-insurance-be-applicable/articleshow/123692515.cms
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