New GST Updates for Loan Services – What You Need to Know in 2025

India’s indirect tax system is undergoing a major transformation with the launch of GST 2.0. This reform aims to simplify the existing GST structure and make financial services more affordable for the end user. One of the most talked-about changes is the removal of GST on individual life and health insurance policies — something that directly impacts loans, as many banks and NBFCs bundle insurance with their credit products.

Let’s break down what these changes mean for lenders, borrowers, and the overall financial ecosystem.

Key Highlights of GST 2.0

Here’s what has changed with the new GST updates:

• The old four-tier GST structure (5%, 12%, 18%, 28%) has been replaced with two slabs – 5% and 18%, with a separate 40% slab for luxury and sin goods.

• Life and health insurance premiums for individuals are now completely exempt from GST (0% GST).

• The new rules officially come into effect from September 22, 2025.

This is a major reform that is expected to reduce compliance hassles for financial institutions and provide cost savings for borrowers.

Why This Matters for Loan Services

These GST changes aren’t just a policy update — they have a real impact on how loans are priced and sold. Here’s how:

1. Cheaper Loan-Linked Insurance

Most banks and NBFCs offer loans that include a life or health cover. With GST removed, the premium amount becomes cheaper.

• Borrowers save money on EMI-linked insurance premiums.

• Lenders can promote loans as more affordable and secure.

2. Better Value for Borrowers

This update is great news for anyone planning to take a home loan, personal loan, or MSME credit. Not only do you get protection with the bundled insurance, but you also pay less overall — a win-win.

3. Easier Compliance for Lenders

Loan providers no longer need to worry about collecting and depositing GST on these insurance premiums, which means simpler GST filings and less back-and-forth with auditors.

4. Competitive Advantage for Banks & NBFCs

This reform creates room for innovative loan products. Lenders can design offers like “No GST Premium Loans” or run campaigns highlighting lower costs, making them more attractive to borrowers.

What Should You Do as a Borrower or Lender?

If you’re a borrower, this is the right time to explore loan options — you might get a better deal after September 22.

If you’re a lender or NBFC, update your loan brochures, EMI calculators, and marketing campaigns to reflect this cost-saving. Highlighting “GST-free insurance” can be a great selling point.

Conclusion

The new GST reforms for loan services mark a positive shift for both lenders and borrowers. By exempting individual life and health insurance from GST, the government has effectively reduced the overall cost of credit and simplified compliance for financial institutions.

With GST 2.0 coming into effect in September 2025, now is the perfect time for loan service providers to redesign their products and for borrowers to plan their finances strategically.