Is GST Applicable on ULIPs? Here's Everything You Need to Know

What is a ULIP?

A ULIP plan, which stands for Unit Linked Insurance Plan, offers two benefits in one plan. It provides life insurance (money to the insured’s family in case of the life assured’s death) along with market linked investments. That is why many are so eager to buy ULIPs because they are getting protection and market linked investments as well.

With a ULIP, the money you pay as a premium is split into two portions. One of the portions represents the costs for your life cover, while the other is put into market linked funds. These funds can be in equities or debt or a combination of both. Depending on how risk-averse you are, you can prefer to buy the funds that suit your risk taking ability.

ULIPs can be handy for long-term goals such as retirement, purchasing a house, or funding a child's education etc. You also receive tax benefits on the premiums you pay!

However, one thing that many overlook is the Goods and Services Tax (GST) applicable on ULIPs. Yes, GST will also be included in the ULIP charges. You should consider the ULIP plan GST rate cost before signing, so that you have a complete understanding of what you will pay!

The Impact of GST on Insurance Premiums

GST is a tax you pay when you buy many goods or services, including insurance. In the case of ULIP plans, GST is charged on some of the extra costs inside your plan. These extra costs are not shown as part of your premium, but they are taken from your money. That’s why knowing how GST works in ULIPs is very important.

Here’s how it works: when you buy a ULIP, your premium is used to provide life insurance and put your money in funds. A GST of 18% is added only on charges portion of ULIP premium, because ULIP is an insurance product and insurance is a service.

So, if the premium is ₹1000, and charges are say 100, GST @18% is levied only on charges portion i.e. ₹100. This amount of GST that is ₹18 is paid to the government.

Understanding the GST in ULIP plan helps you know how much is really being used for insurance, savings and how much is going into overhead charges and taxes. This helps you make a smart and clear decision before buying a plan.

Can You Claim GST on ULIPs as Tax Deductions?

Yes, even though GST is added to your ULIP premium, you may be able to save on taxes. When you buy a ULIP plan, the total amount you pay — including GST — can be used for tax deductions under certain rules.

Here’s how it works:

• Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to ₹1.5 lakh per year under old tax regime. This includes the full premium you pay for the ULIP in case of old tax regime.
• This tax benefit is available when you buy the plan for yourself, your spouse, or your children.
• If your ULIP has a health-related rider (like a critical illness benefit), you can also claim a deduction under Section 80D, in case of old tax regime.

Pointers:

• Premium paid qualifies under Section 80C, in case of old tax regime.
• The maximum limit is ₹1.5 lakh.
• Riders related to health (if added) qualify under Section 80D (incase of old tax regime).

So, while you do pay GST on your ULIP plan, it becomes a part of your tax-saving amount. This makes it easier on your pocket when you file taxes each year.

Is there any GST applicable on the surrender value and how much?

Yes, GST may apply when you surrender your ULIP plan early. Surrender means you decide to stop the plan and take back your money before the full term is over.

Pointers to know:

• Before 5 years (lock-in period)

  
  : If you surrender your ULIP before completing 5 years, the insurance company may deduct surrender charges. On these charges, 18% GST is added.

• After 5 years

  
  : Once you finish 5 years, there are usually no surrender charges. Even GST is not usually applied to the fund value. But if any charge is still there, GST applies to that charge.

• Charges that attract GST

  
  : These include policy discontinuation charges, if mentioned in your plan.

• How much GST

  
  : It’s fixed at 18% on applicable charges.

So, if you stop your ULIP early, you don’t just lose on returns, you also pay GST on surrender charges.

Details on GST and Surrender Value

When you decide to end your ULIP before the lock-in period of 5 years, the insurance company will reduce some amount from your total fund. This is called a surrender charge. On top of this surrender charge, GST at 18% is also added on surrender charges. So, the money you finally get is less than what you had in your fund.

Let’s understand with a simple example.

Say you have Rs. 1,00,000 in your ULIP fund. You surrender it in the 4th year. The company charges Rs. 3,000 as a surrender charge. Then they add Rs. 540 as GST (which is 18% of Rs. 3,000). So, you get back Rs. 96,460.

But if you surrender after 5 years, there may be no surrender charges. And if there are no charges, there is also no GST. You will get the full fund value without deduction, as per policy terms.

That is why it is better to continue your plan for at least 5 years. It saves you from extra charges and taxes. Knowing the ULIP plan GST rate while surrendering helps you plan better and avoid surprises.

Summing It Up

• ULIP plan GST rate is 18% on charges.
• GST adds to your premium and surrender cost.
• You can claim tax deductions under Section 80C, in case of old tax regime.
• Always read the fine print to know GST impact.

Pointers:

• GST is charged on charges, not the fund value.
• Premium is eligible for tax savings.
• After 5 years, GST on surrender may not apply.

You can plan better and maximize from your ULIP plans, by understanding how GST applies to your ULIPs.

FAQs

Is GST applicable on ULIP?

When you buy a ULIP, you pay for life insurance which is a service offering and hence GST is applicable on ULIPs. GST at 18% is added on charges portion This GST is charged by the insurance company and then paid to the government. So, yes, GST is a part of your ULIP plan cost.

Is ULIP taxable now?

ULIP plans may be taxed in some cases. If your yearly premium is more than ₹2.5 lakh, the money you get at maturity could be taxed as Capital Gains Tax. But if your premium is less than Rs. 2.5 lakh, and you meet other conditions, it may still be tax-free. Also, the amount you pay for ULIP can be claimed as a tax deduction under Section 80C in case of old tax regime. So, ULIPs can save tax, but only if you follow the rules.

Which insurance schemes are exempt from GST?

Most insurance plans have GST. But a few plans like the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and other government-supported insurance schemes do not have GST. These are low-cost insurance plans made for the common man. For other plans like ULIP, , term plans, GST at 18% is added. So, only a few government schemes are free from GST.

Is there GST on single premium annuity policy?

Indeed, GST is also levied on single premium annuity plans. However, the rate is lower than regular ULIP or term insurance. For these plans, the GST is only 1.80% of the premium, as the Annuity Plans being long term anyways, the government has given some relief to the individual policyholders. Hence when you buy a one-time premium for an annuity plan you are paying GST, but at a lower rate. This still adds to your total cost.