Union finance minister Nirmala Sitharaman is spearheading efforts to build state consensus on Prime Minister Narendra Modi’s “next generation” GST reforms ahead of the promised Diwali implementation, with the insurance exemption forming a key component of the broader overhaul.

Sitharaman is reaching out to three Groups of Ministers (GoMs)—the engagements were planned over Wednesday and Thursday—to secure agreement for reforms that would deliver Modi’s promised “very big gift” to citizens this Diwali, now about two months away.

“There is near consensus in the GoM on this matter, but the council is the final authority,” said one person aware of the development, referring to the Group of Ministers examining the proposal.

The exemption would provide significant relief to millions of Indians currently paying 18% GST on both life and health insurance premiums, though it would cost the exchequer an estimated ₹9,700 crore in annual revenue.

Bihar deputy chief minister Samrat Choudhary, who heads the GoM on both rate rationalisation and insurance matters, confirmed the Centre’s proposal and said his panel would make recommendations to the GST Council—the apex federal body that takes final decisions on indirect tax matters.

The insurance exemption is part of Modi’s three-pillar GST reform vision announced during his Independence Day speech, encompassing structural reforms, rate rationalisation, and ease of living measures.

The finance ministry said Sitharaman addressed all three GoMs at Vigyan Bhawan, with the Union minister of state for finance, chief minister of Goa, deputy chief minister of Bihar and finance ministers from various states participating in the deliberations.

Whilst Samrat Choudhary heads the GoMs on rate rationalisation and insurance, Union Minister of State for Finance Pankaj Chaudhary leads the third GoM focused on restructuring compensation cess arrangements.

The comprehensive reform package is estimated to have a revenue impact of around ₹85,000 crore annually but is expected to boost consumption by ₹1.98 lakh crore, according to an SBI Research report released on Tuesday.

The reforms would reduce GST slabs from four to two, eliminate the 12% and 28% rates, and streamline compliance processes, providing massive relief particularly to the poor, farmers, and middle class. A third category of 40% GST will apply to a handful of “demerit goods” such as luxury items that are typically highly taxed.

“The proposed reduction of GST on health and life insurance from 18% to nil shows how GST has evolved from just a way to collect revenue to a tool for advancing national goals,” said Saurabh Agarwal, tax partner at EY India. “It can help promote financial inclusion, strengthen healthcare, and support key initiatives like Ayushman Bharat and universal coverage.”

The Union finance ministry outlined how the structural reforms would correct inverted duty structures, reduce input tax credit accumulation, and resolve classification disputes whilst ensuring policy stability for long-term business planning.

Rate rationalisation—reducing the current four slabs of 5%, 12%, 18% and 28% to just 5% and 18%—would provide relief to farmers, the middle class and MSMEs whilst creating a simplified, transparent tax regime that enhances affordability and boosts consumption.

The third pillar focuses on ease of living through tech-driven registrations, pre-filled returns to reduce errors, and faster automated refunds to simplify compliance and enhance business operations.

The GST Council, chaired by Sitharaman and comprising state finance ministers, typically reaches unanimous decisions—barring one occasion in its history—and is expected to meet in the coming weeks to deliberate on the reform proposals.

“The central government remains committed to building a broad-based consensus with the states in the coming weeks to implement the next generation of GST reforms in the spirit of cooperative federalism,” the finance ministry said.

The insurance exemption proposal comes as the government seeks to strengthen healthcare access and financial inclusion, particularly relevant given India’s expanding insurance penetration and the ongoing push for universal health coverage under schemes like Ayushman Bharat.

Officials said the reforms, despite short-term revenue implications, would deliver massive gains through deeper tax base expansion whilst providing substantial relief to citizens, particularly the poor, ahead of the festive season.