10 Dec 2019Posted By: Mudit Handa


How does GST apply on LIC Life Insurance Policy?

Whether or not an individual is having a better than average size of his bank balance; a feasible retirement plan, for example, a pension, or a savings scheme, life insurance is a very essential need. Your tremendous reserve funds or the sizable savings account might get drained in a matter of a few minutes, if there is an occurrence of an unavoidable emergency, for example, a sickness or a surgery. Thus, going with the best life insurance scheme will urge you to spare a little bit of your regular savings in order to meet the necessary sudden needs in case of an emergency. So as to choose a suitable insurance plan, you need to know the fundamentals of LIC insurance. Hence, you need to know the rules of GST registration and GST taxes applicable to the LIC insurance premium.

Firstly, we must try to be familiar with the importance of the LIC life insurance plan.

 

1. What is the need for a LIC life insurance policy?

A LIC life cover Government managed investment funds benefits have their very own advantages in the present age. In the present adverse living circumstances and breaking down health conditions, one can't utter a word. Henceforth, the Social security benefits have become necessary for every individual today especially for the time of crises. In case, a certain hazard may happen, or certain ailment conditions might be there, the LIC life insurance arrangement ensures the welfare of the families of the affected people.


2. When is GST applicable to the life insurance business?

As per the GST law, GST is applicable to all insurance services, except for those insurance services that given to those entities that are themselves involved in the insurance business. In that case, GST is applicable to the recipient on the RCM basis.

  • The life insurance companies are supposed to have mandatory GST registration and are supposed to charge GST on the general insurance as well as life insurance services.
  • Besides, in accordance with Section 24(vii) of the CGST Act 2017, all the insurance agents shall have a mandatory GST registration.
  • GST rate of 18% is applicable on the commission earned by the insurance agent.

3. How much GST Tax is applicable to LIC life insurance plans?

GST Tax shall be charged on LIC life insurance plans as explained below:-

Particularly

Rate of GST (%)

Term life insurance & Health insurance and ULIP charges

18

NB premium, which also covers Single  Premium of Life and Pension products and First-year premium of Annuity products

4.5

The premium on Renewal of Policy

2.25

Single premium in Annuity Product

1.8

Recently, the GST department had reduced the GST rate on the insurance of commercial vehicles, at the 31st GST meeting.


4. How does GST apply to Interest on Delayed Premium?

In case you have made a delay in payment of premium, there shall be naturally a late fee charged on it. GST will be separately charged on the Interest charged on the late fees.

In this case, there’s no fixed GST rate. The GST rate on the Interest levied on the late fee depends upon the type of premium paid.


5. How does GST apply to CDA Charges?

CDA means Capital Dividend Account. This is a type of account that a company opens for its stakeholders. Regular payment of the dividend is made to all the shareholders towards their CDA account. Hence, companies also provide insurance of the CDA account.

  • Here, on the insurance premium of CDA, the GST shall apply @ 18%. The CDA charges also include postage charges.
  • Evidently, the company providing CDA insurance shall have mandatory GST registration.

6. When to refund GST charged from the Insurance policyholders?

The GST paid by the policyholders on the LIC insurance premiums has to be recovered in some cases. Here are the cases of refund of GST paid on insurance premiums:-

  • GST on some charges paid by the policyholders, e.g. alteration fee or any quotation charged.
  • Any duplicate insurance premium charged.
  • GST levied on the charges recovered in the case of granting a written acknowledgment for the receipt of a notice of assignment.
  • Besides the GST levied while cancellation of the LIC life insurance policy.
  • GST applicable in case of a change of the nomination, i.e. the name of the person insured.

However, on all of the above cases, the rate of GST will depend as per the type of LIC life insurance policy. Obviously, the insurer(s) in any case is bound to take the mandatory GST registration irrespective of his turnover in a previous financial year. 

So, these are the ground rules of GST applicable on the LIC life insurance services. You can now smartly choose the suitable LIC life insurance policy.

 

If you need any assistance regarding the entire process of GST registration in India, please feel free to contact our business advisor at 8881-069-069.

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