ke insurance more affordable and clarify tax implications, especially concerning Unit Linked Insurance Plans (ULIPs). Understanding these changes is crucial for policyholders to make informed decisions.
TLDR:
- GST on life and health insurance premiums reduced to 0%
- ULIPs with annual premiums exceeding ₹2.5 lakh now subject to capital gains tax
- Section 80C deduction limit remains unchanged at ₹1.5 lakh
Major Changes in Term Insurance Taxation
1. GST Reduction to 0%
Effective September 22, 2025, the Goods and Services Tax (GST) on individual life and health insurance premiums has been reduced from 18% to 0%. This reform aims to lower the cost of insurance for policyholders.
- Impact:
- Premiums become more affordable
- No GST charged on premiums
- Insurers no longer eligible for input tax credit on commissions
- Potential for slight increase in operational costs for insurers
2. ULIP Taxation Clarified
Budget 2025 has clarified the taxation of ULIPs. If the annual premium exceeds ₹2.5 lakh, the policy will be treated as a capital asset, and the proceeds will be subject to capital gains tax.
- Tax Rates:
- Short-term capital gains (STCG): 20%
- Long-term capital gains (LTCG): 12.5%
- Exemption: Up to ₹1.25 lakh of LTCG per annum
3. Section 80C Deduction Limit Unchanged
The deduction limit under Section 80C remains at ₹1.5 lakh per annum. This cap applies to all eligible investments and expenses, including term insurance premiums.
- Impact:
- No increase in deduction limit
- Policyholders need to manage other investments within the ₹1.5 lakh cap
Real-Life Example
Consider Rajesh, a 35-year-old professional with a ₹1 crore term insurance policy. Before the GST reduction, his annual premium was ₹12,000 plus 18% GST, totaling ₹14,160. Post-GST reduction, his premium is now ₹12,000, saving him ₹2,160 annually.
Additionally, if Rajesh had invested in a ULIP with an annual premium of ₹3 lakh, the maturity proceeds would now be subject to capital gains tax, impacting his returns.
Conclusion
The Budget 2025 reforms bring clarity and affordability to term insurance policies in India. While the reduction in GST makes premiums more affordable, the clarification on ULIP taxation necessitates careful consideration for policyholders with high premium amounts. It’s essential to review your insurance portfolio and consult with financial advisors to align your investments with these changes.
Reviewed and Edited by
Ashok Hegde
Ashok Hegde is the Chief Executive Officer at Quantent, where he leads a team of media professionals helping clients leverage digital media for better business outcomes. With over 30 years of experience across print and digital media, he advises clients on content and media strategy — from startups to established brands. His focus is on helping organisations use online media — social, search, and mobile — to build brand awareness, drive sales, and protect reputation.
