What is GST?
Introduced in the Budget speech of 2006, GST or Goods and Services Tax laid the foundation for the transformation of India’s indirect tax system. The Goods and Services Tax Act was implemented on 1st July 2017 and has undergone a chain of amendments since its inception. GST, which now replaces multiple indirect taxes including VAT, excise duty, service tax etc., has the Central Board of Indirect Taxes and Customs (CBIC) as its regulatory board. Today, GST is applied to the final market price of goods and services that are sold within the country's domestic boundary. GST is split into three components- Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST). While SGST and UTGST are intra-state and intra-union territory taxes levied on goods and services by the state and union territory governments respectively, CGST is levied by the central government on intra-state or intra-UT transactions of goods and services. Then, there's IGST which is a tax applied on goods and services sold between states. The IGST is shared by the state and central government.
What is the impact of GST on insurance premiums?
Before the introduction of GST, insurance premiums were subject to 15% service tax, which also included cess (tax on tax). With the shift to GST, taxation on insurance premiums rose from 15% to 18% Although the 3% increase in taxation seems minor, it influences long-term policies like life insurance and health insurance. The existing policyholders from the pre-GST era and the new ones after the implementation of GST were faced with an increase in premium amounts. The increased number of GST returns led to a rise in compliance and administrative costs for insurers.
How does GST influence different life insurance policies?
The impact of GST on life insurance premiums is as follows:
- Term insurance policies are among the most cost-effective life insurance plans. They are basic life insurance plans which only have a death benefit. In case the life assured is no more during the policy term, the nominees will receive a predetermined amount from the insurance company. Term insurance premium payments are subject to a regular 18% GST.
- An endowment plan provides both life cover and maturity benefits. The nominee will receive a lump-sum payment from the insurance company in the unfortunate event of the demise of the life assured. The maturity benefit component of this policy is that it will provide you with a fixed payout upon the maturity of the plan. A GST of 4.5 % is collected on the first year's premium and a 2.25 % GST will be applied on the subsequent years.
- Unit Linked Insurance Plan (ULIP) is both a life insurance cover and a market-linked investment opportunity. The GST rate on ULIPs is at 18%.
Some of the life insurance policies offered by the Government which are exempted from GST include:
- Janashree Bima Yojana (JBY)
- Aam Aadmi Bima Yojana (AABY)
- Varishtha Pension Bima Yojana
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Pradhan Mantri Vaya Vandan Yojana
- Pradhan Mantri Jan Dhan Yojana
How can you save tax on GST paid for life insurance?
Section 80C of the Income Tax Act allows certain investments and expenses to be exempted from taxation. Under this 80C limit, premiums paid towards life insurance plans qualify for tax deductions. By planning your investments well according to this income tax law, an individual will be able to claim a tax deduction of up to Rs.1.5 lakhs. Today, an annual premium of up to 10% (of the predetermined amount of money that insurance companies are obligated to pay) is exempted from tax under this scheme. Before 2012, premiums of up to 20% (of the total fixed amount assured) were used to qualify for tax exemption under section 80C deduction.
In the case of insurance and investment hybrid models like ULIPs, the investment component is excluded from the total amount paid while calculating GST. Therefore, instead of being levied on the whole premium, the 18% GST on ULIPs is applied to various expenses you pay for including the fund management and mortality charges.
Conclusion
The rise in GST rates results in both the existing and new policyholders paying higher amounts in premiums. You need to have a clear understanding of the impact of GST on your life insurance policy to manage your investments well and qualify for tax exemption. Section 80C of the Income Tax Act allows a tax deduction of up to Rs.1.5 lakhs on investment schemes. Do note that all the information above is for Financial year 2024-2025.
FAQs
Will there be GST in A&N Islands as previously there was no VAT?
Yes, Good And Services Tax (GST) will be applied to goods and services transactions within Andaman and Nicobar Islands. While UTGST will be applied by the union territory government, CGST will be levied by the central government.
What is the rate of GST on life insurance premiums?
GST rates on life insurance policies can vary according to the plan you are option for. The rates for some of the popular plans include:
Term life insurance - 18% GST on the entire premium.
Endowment policy - 4.5% GST for the first year premium and 2.25% GST for the following years. ULIPs- 18% GST
An ISO 9001:2015 
