New Delhi, 04 September 2025: India is preparing for one of the most significant tax reforms in years. Beginning September 22, 2025, the government’s new Goods and Services Tax (GST) framework will ease financial pressure on households by removing taxes on health and life insurance premiums and granting zero GST on 33 lifesaving medicines.
This major reform comes at a time when medical inflation and high insurance costs have been weighing heavily on families. By lowering these financial barriers, the move is expected to make both healthcare and financial protection more accessible to the common man.
GST Slabs Simplified
The earlier GST system had four main slabs—5%, 12%, 18% and 28%. These have now been rationalized into just two broad rates: 5% and 18%, with the introduction of a new 40% slab for luxury and “sin” goods such as cigarettes, high-end vehicles, and carbonated drinks.
The simplified structure is designed to reduce complexity, boost consumption, and ensure affordability for essential products and services—particularly in healthcare and insurance.
Insurance: Now GST-Free
One of the biggest announcements is the removal of the 18% GST on health and life insurance premiums.
This applies to:
- Individual health insurance plans, including family floaters and senior citizen plans
- Term life insurance
- Endowment policies
- ULIPs (Unit Linked Insurance Plans)
- Reinsurance linked to these policies
Until now, a policyholder paying an annual premium of ₹20,000 was charged an additional ₹3,600 in GST, raising the total cost to ₹23,600. With the new system, the policy will cost exactly ₹20,000—no additional tax.
This amounts to nearly 15% savings, making insurance premiums more affordable and encouraging more households to secure financial protection.
What It Means for Consumers
The zero GST on insurance will directly lower the cost of new policies and renewals. This is expected to:
- Increase insurance penetration across urban and rural markets.
- Attract first-time buyers, particularly young professionals and middle-class families who often avoid coverage due to high premiums.
- Provide relief for senior citizens, many of whom face steep health insurance premiums.
- Encourage long-term savings, as endowment and ULIP products become cheaper to hold.
For the government, this aligns with the larger goal of “Insurance for All” in the coming decades, aiming for greater social security and reduced out-of-pocket healthcare expenses.
Lifesaving Medicines: Now Tax-Free
Another major relief is the removal of GST on 33 critical medicines used to treat cancer, rare genetic conditions, and chronic illnesses.
Drugs such as enzyme therapies, advanced clotting factors, and medicines costing lakhs of rupees per dose have been moved from 12% GST to 0% GST. Additionally, three high-value cancer and rare-disease medicines that were earlier taxed at 5% are now also exempt.
For patients and families already burdened by heavy medical bills, this move will provide much-needed financial relief. Hospitals and pharmacies are expected to pass on the benefit to consumers, significantly reducing treatment costs.
Medical Devices at Lower GST
Beyond medicines, the reform also reduces the GST rate on essential medical devices and equipment.
Items such as:
- Diagnostic kits
- Glucose meters
- Surgical equipment
- Bandages and dressings
…which were previously taxed at 18%, will now be subject to just 5% GST.
This ensures not only lower hospital bills but also cheaper home-based healthcare equipment, making long-term disease management more affordable.
Everyday Goods Get Cheaper Too
The reforms are not limited to healthcare. A number of daily essentials and household items have also seen tax cuts, including:
- Hair oil, soaps, shampoos, and toothpaste: GST reduced from 18% to 5%
- Shaving creams and personal care products: Now taxed at 5%
- Paneer, UHT milk, and Indian breads like roti, chapati, and paratha: Now GST-free
By reducing prices of daily-use items, the reform extends relief beyond hospitals and insurance to the average household’s monthly budget.
Why This Matters
The twin relief on insurance and medicines addresses two of the most financially sensitive sectors for Indian families.
- Rising Medical Costs
With healthcare inflation in double digits, even routine treatments can drain savings. Removing GST on medicines lowers the cost burden directly. - Low Insurance Penetration
Despite India’s growing population, insurance penetration remains low compared to global standards. Lowering premiums through tax relief is expected to widen coverage, especially among low- and middle-income groups. - Boost to Consumption
By reducing costs on essentials, the government aims to revive domestic demand, which has slowed in recent quarters. - Fiscal Impact
While the tax cuts are expected to reduce government revenue by tens of thousands of crores, the hope is that increased consumption and broader coverage will offset some of the fiscal loss.
Reactions from Industry and Citizens
The insurance industry has welcomed the move, calling it a bold step that will help expand coverage in line with long-term goals of universal insurance access. Companies expect a surge in first-time buyers, particularly among younger demographics.
Pharmaceutical experts have noted that making high-cost medicines tax-free will directly ease the financial stress of patients battling cancer, genetic diseases, and other chronic illnesses. Families struggling with treatment costs are likely to see a meaningful difference.
Consumers, too, are optimistic. Many families that hesitated to buy insurance due to high premiums are now re-evaluating their decisions. Patients battling rare diseases or cancer see this as life-changing financial support.
The Bigger Picture
This reform is not just about lower premiums or cheaper medicines—it reflects a broader shift in policy towards affordable healthcare and financial security.
- For the healthcare system, it means patients are more likely to seek timely treatment without delaying due to costs.
- For the insurance sector, it promises higher coverage, better risk pooling, and deeper market penetration.
- For the economy, it creates more room in household budgets for spending, potentially boosting overall demand.
The symbolic timing of these changes, beginning with Navratri on September 22, also ties into the festive season—when families plan finances, make purchases, and invest in long-term commitments like insurance.
Key Takeaways
- Effective from September 22, 2025
- Health and life insurance premiums: 18% GST removed, now tax-free
- 33 lifesaving medicines: Moved to 0% GST
- 3 high-cost rare disease and cancer drugs: Now tax-free
- Medical devices: GST cut from 18% to 5%
- Everyday goods: Shampoos, soaps, toothpaste, paneer, breads, and milk now cheaper
The latest GST reform marks a turning point in how India approaches healthcare affordability and insurance accessibility. By removing taxes on critical medicines and cutting GST on health and life insurance premiums to zero, the government has eased the financial load on millions of households.
For patients battling life-threatening diseases, this is a lifeline. For families considering financial protection through insurance, this is a powerful incentive. And for the economy at large, it is a step towards boosting consumption, improving health outcomes, and building resilience.
From September 22, healthcare in India will not just be about treatment—it will also be about affordability, accessibility, and financial security. Relief is truly on the way.
