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GST On Life Insurance Premium

Goods and Services Tax (GST) has had a huge effect on one of the most critical types of insurance that people seek i.e. life insurance. As GST exemplifies the utility tax that applies to the insurance sector, its implementation has resulted in a rise in premium amounts. That said, the GST has also been credited with a variety of positive impacts on the life insurance market.

What Is GST?

GST for life insurance premium is a kind of indirect tax that came into force in 2017 as a way of removing the complicated landscape of India's various other indirect taxes. 

Goods and Service Tax (GST) is charged on the provision of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax imposed on any value added. The GST Council has allocated the rates of GST to various goods and services. Although some goods can be bought without a GST, others come in at 5% GST, 12% GST, 18% GST, and 28% GST.

Goods such as fuel, tobacco, etc. which are for human use and non-taxable do not attract GST for supply under the GST Act. Supply of goods which fall under the zero-rated list, i.e. the tax rate of goods which is set at 0%, falls under the GST exemption list. This includes fresh herbs, fresh milk, and so on.

How Much GST Is Applicable on Life Insurance?

Prior to GST, life insurance premiums were subject to service taxes which amounted to 15% and comprised taxes such as Basic Service Tax, Swachh Bharat Cess and Krishi Kalyan Cess. 

However, after the implementation of GST, the tax on life insurance plans stands at a standard figure of 18%. This increase from 15% to 18% had an impact on the end consumer, that is the policyholders, as they now need to pay relatively higher premiums on their plans.

However, while the primary impact of GST on life insurance policies was to increase premium amounts, it benefited the life insurance market in many respects. It has helped to promote close competition among insurance providers and has ultimately led them to offer life insurance plans at lower premiums by cutting back on other policy-related costs. It has also standardised the utility tax element of insurance rates, leading customers to look at other, more relevant dimensions of insurance prices.

How GST Differs For Different Types of Life Insurance?

The significant effect of GST on life insurance policies that insurance-seekers must bear in mind is that GST relates differently to various life insurance items. Here's what you need to hear about:

  • In the case of term insurance policies, which are the most affordable type of life insurance, GST is charged at 18% for premium payments.
  • In the case of Unit-Linked Insurance Policies (ULIPs), GST is charged at 18%. This requires the cost of GST for subscription fees as well as the cost of handling the funds.
  • GST is implemented differently from conventional life insurance plans, also known as endowment schemes. GST is charged at 4.5% for first-year premiums for these plans, and at 2.25% for following years.
  • In the case of single premium annuity schemes, the GST is levied at 1.8%.

GST IMPACT ON LIFE INSURANCE

Insurance Product

Tax Applicable

Old service Tax Rate

Effective GST Rate

% Increase

Term Plans, Health Plans, Riders

Premium Amount

15%

18%

3%

Car, Bike Insurance

Premium Amount

15%

18%

3%

ULIP Plans

Charges

15%

18%

3%

Endowment Plans

1st Year/ Single Premium

3.75%

4.50%

0.75%

Endowment Plans

Renewal Premium 

1.88%

2.25%

0.38%

Single Premium Annuity Plans

Premium Amount

1.50%

1.80%

0.30%

How To Save Tax on Life Insurance Premium?

Although the impact of GST on life insurance policies could have been to increase premium amounts, there are many deductions that allow you to save income tax in India. Through these exemptions, you can not only take advantage of the tax gain on the life insurance policies but also on the GST charged on those premiums.

The most common deductions that allow you to save income tax in India, particularly on your life insurance premiums, are Section 80C and Section 80D of the Income Tax Act, 1961. Under Section 80C, tax deductions of up to Rs. 1.5 Lakh can be added to the gross insurance premiums, plus the GST applicable to them. In the meanwhile, if you have selected a medical rider for your life insurance policy, Section 80D offers you tax exemptions on your premiums.

Conclusion

Now that you have a better idea of the past and the effect of GST on life insurance policies, you will need to realise that there are more life insurance plans than mere price differences. The details regarding the GST on term insurance or life insurance are explained here in the article however, don't get confused and select a premium only as per your requirements.

Also Read

How To Save Tax With Life Insurance?

Life Insurance Premium and Tax Benefits

Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.            

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