Govt likely to slash GST on insurance premiums to nil, says report
Aug 18, 2025
Synopsis
The government plans to reduce GST on insurance premiums from 18% to 5% or even zero, as part of the upcoming GST 2.0 reforms aimed at simplifying the tax system and easing the burden on consumers and businesses. Insurance stocks rose up to 5% on the news. The new GST structure will feature two main slabs—5% and 18%—and a special 40% slab for luxury and sin goods like alcohol and tobacco, replacing current 12% and 28% rates.
The government aims to slash Goods and Services Tax (GST) on insurance premiums to 5% or even zero from 18% currently, said a Reuters report citing sources. The proposal is part of the upcoming GST 2.0 blueprint, which aims to simplify the indirect tax structure and reduce the burden on both citizens and businesses.
Insurance company stocks surged up to 5% after the development.
Alongside the cut in GST on insurance, the government is proposing a significant overhaul of the Goods and Services Tax structure. The new regime is expected to operate with two main slabs of 5% and 18%, while introducing a special 40% slab for luxury and sin goods such as alcohol and tobacco. This represents a move away from the existing 12% and 28% slabs, which will be phased out under the new system.
Essential items, including food, medicines, medical devices, stationery, educational products, and daily-use goods like toothbrushes and hair oil, will continue to be either tax-free or taxed at 5%. Middle-class consumption goods such as televisions, air conditioners, and refrigerators are likely to fall into the 18% category. The government has also highlighted automobiles, handicrafts, farm goods, textiles, fertilisers, and renewable energy as sectors receiving special attention in the restructuring process.
In addition, the simplified slab structure is expected to eliminate classification disputes that have arisen over items like namkeens, parathas, buns, and cakes, which were earlier subjected to different tax rates based on varying ingredients. Special rates such as 0.25% on diamonds and precious stones and 3% on jewellery will continue, ensuring support for industry-specific growth.
For the alcohol and tobacco sector, the government has proposed a 40% sin tax, applicable to only a handful of items, including tobacco, while the overall incidence of tax on tobacco products would remain unchanged at 88%.
The proposed GST 2.0 framework, with its simplified rate structure and targeted reforms, marks one of the most comprehensive changes since the launch of GST.
[The Economic Times]
