On 3rd September 2025, the 56th GST Council meeting was held in New Delhi, chaired by Union Finance Minister Nirmala Sitharaman.
The session’s main objective was to simplify India’s indirect tax system and provide relief to citizens with GST rate cuts, and make GST 2.0 a success. Among its most impactful announcements were:
- Exemption of Goods and Services Tax (GST) on individual health and life insurance premiums.
- Revised GST rates for cars and two-wheelers, making vehicles more affordable for consumers.
These reforms, effective from 22nd September 2025 (the first day of Navratri), are being seen as significant steps toward both affordability and wider access to essential products and services.
Background & Catalyst
Before these exemptions, individual health and life insurance premiums were taxed at 18% GST. Similarly, cars and bikes were taxed at higher slabs depending on engine capacity and type, with luxury vehicles attracting additional cess.
“This was so much questioned last year. In Parliament, Opposition members questioned, saying, "You want to tax insurance premiums?”
— Finance Minister Nirmala Sitharaman
The Council also pushed forward a broader rationalisation of GST: moving from a complicated four-slab system to a simplified two-slab model of 5% and 18%, with a special 40% slab for luxury and sin goods. Within this framework, relief on both insurance and vehicles emerged as citizen-centric reforms.
Details of the Insurance Exemption
From 22nd September 2025, individual health and life insurance policies will attract 0% GST, meaning customers will now pay only the base premium. This exemption applies across term life, endowment plans, ULIPs, family floater health covers, and senior citizen health policies.
“After a detailed study, taking stakeholders into confidence, we have come up with this so that families and also people who take individual insurance get the benefit. Of course, we will make sure that companies pass on this benefit to people who are taking insurance. We want to give people who are looking to get medical insurance the relief.”
— Finance Minister Nirmala Sitharaman
This change translates into an average savings of 15–18% on premiums for millions of households. Effectively, if a family was earlier paying ₹11,800 for a ₹10,000 premium policy (₹1,800 GST included), they will now pay only ₹10,000.
New GST Rules for Cars and Bikes
Alongside insurance, the Council also introduced important revisions to GST rates on automobiles, which directly impact both car and bike buyers in India.
1. Small Cars and Entry-Level Bikes
The GST Council reduced tax rates on small cars and entry-level motorcycles to make mobility more affordable for the middle class.
- Definition of Small Cars: Cars with engine capacity up to 1200cc (petrol) or 1500cc (diesel) and length under 4000 mm qualify as small cars.
- Examples: Maruti Suzuki Swift, Hyundai i10 Nios, Tata Tiago, and Honda Amaze (diesel under 1500cc).
- Earlier Tax Structure: Small cars attracted 28% GST + 1–3% cess, depending on type.
- New Tax Structure: GST at 18%.
For entry-level bikes (under 350cc engines such as Hero Splendor, Honda Shine, Bajaj Pulsar 150), the GST is revised from 28% to 18%, lowering on-road prices and easing affordability for daily commuters.
NOTE: Even though the GST rate has been cut down to 28% to 18% for small cars and entry level bikes, there might be additional costs from companies and dealerships to make up on the loss.
2. Electric Vehicles (EVs)
The Council has continued its push for clean mobility by retaining the 5% GST rate on electric cars and two-wheelers, the lowest slab in the automobile category. This ensures EVs remain attractive compared to petrol and diesel counterparts, encouraging faster adoption.
3. Luxury Cars & SUVs
Luxury cars and high-end SUVs previously attracted 28% GST + 22% compensation cess, taking the total tax burden to nearly 50%.
- New Rationalised Structure: A direct 40% GST replaces the earlier dual structure.
- Impact: Models such as the Toyota Fortuner, BMW X5, Audi Q7, and Mercedes GLE will now fall under this simplified slab. While still in the high-tax category, the rationalisation removes cess confusion and provides uniformity.
4. High-End Motorbikes
Premium motorcycles above 350cc - such as Royal Enfield 650 twins, Harley-Davidson, and Triumph models – will cost more due to them falling under the luxury goods category, the earlier 28% GST + 3% cess will increase to 40% direct GST, causing the prices for such bikes to increase.
Here’s a table to showcase the new changes in GST Rate for motor vehicles.
| Category | Names of Models | Old Rate (GST + Cess) | New Rate |
|---|---|---|---|
| Two-wheelers (≤350cc) | Bajaj Pulsar, TVS Raider, Hero Splendor | 28% | 18% |
| Two-wheelers (>350cc) | KTM 390 Duke, Bajaj Dominar 400, Royal Enfield Himalayan 450 | 31% | 40% |
| Hatchbacks | Maruti Swift, Tata Altroz, Hyundai i20, Renault Kwid | 29% | 18% |
| Compact SUVs | Tata Punch, Hyundai Venue, Mahindra 3XO | 29% | 18% |
| Mid-sized and Large SUVs | Mahindra XUV700, Tata Harrier, Hyundai Creta | 45–50%* | 40% |
| All Electric Vehicles | Tata Nexon EV, TVS iQube, Hyundai Creta EV, Bajaj Chetak | 5% | 5% |
Note: Old SUV rate varied depending on engine capacity.
Source: Finance Ministry, Nomura
Changes in the GST Rate Slabs
The previous 4 slab GST has now been converted to 2 slab GST regime – 5%, and 18%. Although, the 40% luxury goods and sin goods tax is still there. Heres a table indicating all the changes discussed in the 56th GST Council Meeting:
| Category | Examples | Old Rate | New Rate |
|---|---|---|---|
| 0% (Exempted Items) | Ultra-high temperature milk, paneer, roti/paratha, maps, charts, pencils, notebooks, life-saving & cancer medicines, individual health & life insurance. | 5–18% / 12% | 0% |
| 5% (Merit Essentials) | Hair oil, shampoo, toothpaste, soap, toothbrush, shaving cream, butter, ghee, cheese, namkeens, utensils, feeding bottles, sewing machines, diagnostic kits, glucometer, agricultural machinery & fertiliser, renewable energy devices, hotel accommodation ≤ ₹7,500/day, fitness/grooming services. | 12–18% / 5% | 5% |
| 18% (Standard Goods & Services) | TVs, ACs, dishwashers, small cars (<1200 cc petrol / <1500 cc diesel, ≤4 m length), bikes ≤350 cc, buses/trucks/ambulances/auto parts, cement, man-made fibre/yarn, textiles, motor vehicles, white goods. | Up to 28% / 12% | 18% |
| 40% (Demerit / Luxury Goods) | Tobacco & related products (pan masala, gutkha, cigarettes), sugary/carbonated drinks, luxury cars (>1200 cc petrol, >1500 cc diesel), yachts, helicopters, high-end motorcycles (>350 cc), imported personal-use articles. | 28% + Compensation Cess | 40% |
Impact Analysis of the 56th GST Council on Insurance and Motor Vehicles
The 56th GST Council meeting introduced key policy changes impacting the insurance and motor vehicle sectors, with implications for tax rates, compliance, and industry operations.
A. For Consumers / Households
This decision aims for immediate relief by lowering premium costs. For middle-class families, senior citizens, and individuals with medical needs, the exemption can significantly ease monthly budgets. This decision is also expected to increase insurance penetration, helping India move closer to its goal of “Insurance for All by 2047.”
The exemption of GST on health and life insurance premiums, along with the reduction in taxes on small cars and entry-level bikes, provides much-needed financial relief. Families purchasing insurance policies will now pay only the base premium without the additional 18% GST, translating into direct savings that can ease monthly budgets.
Similarly, middle-class citizens planning to buy compact cars or commuter bikes will benefit from reduced GST, making ownership more affordable. This decision is also expected to increase insurance penetration, helping India move closer to its goal of “Insurance for All by 2047” and improve mobility access, particularly for urban and semi-urban households.
B. For the Insurance Industry and Automobile Industry
The 0% GST regime on individual policies enhances affordability for customers but also removes the ability for insurers to claim Input Tax Credit (ITC) on their operational expenses. While this could lead to marginal cost pressures for insurance companies, the wider adoption of policies driven by affordability is likely to expand their customer base.
A larger insured population strengthens the overall insurance market, opening up new opportunities for innovation and product diversification. In the automobile sector, clearer GST slabs also help manufacturers and dealers streamline pricing structures, making it easier to communicate costs to buyers and boosting consumer confidence. However, the increased tax on luxury bikes above 350cc may cause some complications for the manufacturers as those bikes have gotten expensive.
C. Macroeconomic & Policy Implications
From a macroeconomic and policy standpoint, these reforms align with the government’s broader strategy of rationalising GST into simpler slabs and reducing the cost of essential goods and services. The exemption on insurance premiums directly supports financial inclusion by protecting households from unexpected health and life risks, while the rationalised GST structure for vehicles promotes mobility and supports the "Make in India" initiative by driving demand in the auto industry.
Retaining a low GST rate for EVs further underlines the government’s commitment to green mobility and climate goals. Collectively, these measures not only simplify the tax structure but also create grounds for economic growth by boosting consumption, enhancing household security, and promoting sustainability.
Conclusion
The 56th GST Council’s decisions to exempt individual health and life insurance from GST and rationalise GST on cars and bikes mark a historic shift in India’s taxation system. By removing the 18% burden on insurance and easing the cost of mobility, the government has made two essential aspects of modern life - protection and transportation - more affordable. Beyond immediate savings, these reforms will help deepen insurance penetration, improve vehicle adoption, and contribute to a more inclusive and secure India.
Frequently Asked Questions
From when will the new GST rules be effective?
Both the insurance exemption and revised GST for cars and bikes will be effective from 22nd September 2025.
Which types of insurance policies are covered under the 0% GST rule?
All individual health and life insurance policies, including term life, ULIPs, endowment plans, family floater health covers, and senior citizen policies.
How much tax was levied on insurance premiums earlier?
Earlier, insurance premiums attracted 18% GST, which is now fully waived.
What are small cars?
These cars are under 1200cc for petrol and 1500cc for diesel, and under 4000mm. Examples include Swift Dzire, Wagon R, etc.
What changes were made for cars and bikes?
GST rates were rationalised for small cars, two-wheelers, and EVs, making them more affordable, while luxury cars and superbikes remain under higher slabs.
Does this exemption apply to group insurance policies?
No, the 0% GST applies only to individual health and life insurance. Group policies may continue to attract GST unless otherwise notified.
Will insurers still be able to claim Input Tax Credit (ITC)?
No, insurers will not be able to claim ITC after the exemption. This may impact their cost structure, but customers directly benefit with lower premiums.
Do bikes cost more or less now?
While most of the entry level bikes and majority of bikes under 350cc have seen a reduction in tax due to single GST slab of 18% (Previously it was 28% GST + Cess), bikes above 350cc will fall under 40% slab making them expensive.
