The GST Council may exempt the tax on term life insurance: Here's what that means for you

The GST Council may remove GST on term life insurance, with a formal decision expected on September 9.

The GST Council is expected to exempt term life insurance policies from GST. However, insurance policies with an investment component may still be taxed. A formal decision is likely to be made at the GST Council meeting on September 9.

The official said, according to the outlet,

Life insurance policies that include an investment component will not be exempted. It doesn't make sense to exempt them, as they are essentially investments. Our aim is to exempt coverage for life's uncertainties, not investments.

He stated that exempting term life insurance from GST could result in a revenue loss of approximately ₹200 crore annually. However, this move would make term life insurance more affordable in India, thereby making it more attractive.

"This would be a positive step. It would make insurance more affordable and could lead to increased volumes for insurance companies. Insurance penetration in India is still relatively low compared to other developed countries, and this measure could help close that gap," said Sandeep Sehgal, partner-tax at AKM Global, a tax and consulting firm, according to the report.

What is term life insurance?

Term life insurance is a straightforward protection plan that provides financial security to beneficiaries if the policyholder passes away during the policy's term. This type of insurance offers coverage for a specified period, typically ranging from 10 to 30 years.

What are the premiums for term life insurance?

Premiums for term life insurance are typically lower because it only provides a death benefit without any savings or investment component. If the policyholder outlives the term of the policy, there is no payout unless the policy has a return of premium rider.