GST on Insurance and Banking Services in India 2025: Latest Rates & Impact

India’s 56th GST Council meeting marked a major shift for the insurance sector, easing the tax burden on life and health policies while keeping banking services unchanged. This update decodes the changes and their real-world impact on insurers, banks, and customers alike.

Key Takeaways

• Individual life insurance and health insurance policies are now taxed at 0% GST from 22nd  November 2025.
• General insurance continues at 18% GST with no input tax credit for personal users.
• Banking services remain taxable at 18%, unchanged since GST inception.
• No Claim Bonus (NCB) continues to be treated as a pre-supply discount and is not subject to GST.
• Inter-branch transactions under banking and insurance remain taxable for compliance tracking purposes.

What is GST on Insurance and Banking Services?

GST on insurance and banking is the indirect tax levied on financial and risk protection services in India under the Goods and Services Tax regime. It replaced the Service Tax system in July 2017 to unify taxation across all financial services. The tax affects premiums, service charges, and administrative fees charged by insurers and banks.

GST on Life and Health Insurance

The 56th Council meeting (September 2025) removed GST on individual life, family floater, and senior citizen health policies to improve affordability and social welfare outcomes.
The following now apply:

Impact:

• The exemption directly reduces policyholder costs by around 3%.
• Insurers save administrative effort on tax segregation for investment-linked portions.
• Premium growth is expected to rise, especially in retail and rural segments.

Calculation Example (Before and After):

GST on General Insurance

General insurance includes fire, marine, motor, and property insurance. It continues to attract 18% GST on premiums.

Impact:

• Premium receipts remain higher than pre-GST levels.
• Corporate buyers can continue to claim ITC on GST paid for business-use policies.
• Individual policyholders cannot claim ITC on personal insurance.
• Group life and health policies by employers for employees remain outside ITC eligibility.

Government-Exempt Schemes:

• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
• Aam Aadmi Bima Yojana (AABY)
• Varishtha Pension Bima Yojana
• Janashree Bima Yojana (JBY)
• Aam Aadmi Bima Yojana (AABY)
• Varishtha Pension BimaYojana
• Pradhan Mantri Jan Dhan Yogana
• Pradhan Mantri Vaya Vandan Yojana
• Life micro-insurance up to Rs. 50,000 sum assured
• Schemes notified by State/Central Governments for social security purposes
• Life insurance provided by Central Government to members of the Army, Navy and Air Force.

GST on No Claim Bonus (NCB)

As clarified under Circular No. 186/18/2022-GST (48th Council), No Claim Bonus is to be treated as a discount, not a separate consideration.

As per clause Section 15(3)(a) of the CGST Act, the value of supply shall not include any discount given before or at the time of supply if the same has been recorded on the invoice. 

Meaning:

• NCB reduces the taxable value of the premium.
• No GST is charged on the bonus amount deducted at renewal.

Example:
If a car policy premium is Rs. 10,000 and an NCB of Rs. 1,500 applies, GST (at 18%) applies only on Rs. 8,500.

GST on Banking Services

Banking services remain under the 18% GST slab. This covers charges such as:

• Cash withdrawals beyond free limits
• ATM transaction fees
• Demand draft issuance charges
• Locker rentals and NEFT/RTGS service fees

Impact:

• Financial services remain costlier than the pre-GST era (15% service tax).
• Banks continue collecting GST on each charge and remitting it to the government.
• Business users can claim ITC on such expenses for business accounts; personal account holders cannot.
• Inter-branch transactions between bank offices remain taxable as “distinct person” supplies under GST.

Recent Clarifications from the 56th GST Council Meeting

1. Exemption Effective Date: From 22nd September 2025, all life and health insurance to individuals now at 0%.
2. Corporate Group Schemes: Still taxed at 18% since these are not personal but business-linked benefits.
3. No Change in Banking Rates: 18% GST continues; rationalization deferred to next council review.
4. Digital Premium Platforms: Insurtech aggregators must display GST impact clearly on invoices.