Before the implementation of GST on life insurance policy, life insurance premiums were liable to service taxes, including Basic Service Tax, Swachh Bharat Cess, and Krishi Kalyan Cess.
These all totaled up to 15% tax rate.
Now the GST has been implemented and you have to pay GST as per the life insurance policy.
Let’s understand the GST on Life Insurance Policy in detail through this article.
The Impact of GST on Life Insurance Plans in India
Following the implementation of GST in India, the tax on life insurance plans increased from 15% to a standard 18%, resulting in higher premiums for policyholders.
Despite this initial impact on consumers, the implementation of GST had other positive effects on the life insurance sector.
Insurers were encouraged to reduce their policy-related expenses, leading to tighter competition and lower prices.
Additionally, standardization of the service tax aspect of insurance prices allowed consumers to focus on other critical factors while choosing their life insurance plans.
Understanding GST Application on Different Life Insurance Products in India
When it comes to purchasing life insurance in India, it is essential to be aware of the impact of GST on different products.
Here is what insurance-seekers should know:
- Term insurance plans, the most affordable life insurance option, are subject to a standard GST rate of 18% on premium payments.
- Unit-Linked Insurance Plans (ULIPs), which combine life insurance with investment options, are also charged 18% GST. This covers the GST cost for both premium payments and charges for fund management.
- For traditional life insurance policies, also known as endowment plans, GST is levied differently. A GST rate of 4.5% is applied to the first-year premium, while subsequent years are charged at 2.25%.
- For single-premium annuity policies, which offer a fixed income stream for life, GST is levied at a lower rate of 1.8%.
Therefore, it is crucial for consumers to understand the GST rates applicable to different life insurance products before making a decision.
How to Save Income Tax on Life Insurance Premiums with GST in India?
While the implementation of GST on life insurance plans in India may result in higher premium amounts, there are several deductions that can help you save income tax.
These deductions not only apply to the premium amount but also to the GST paid on those premiums.
The two most popular deductions for saving income tax on life insurance premiums are Section 80C and Section 80D of the Income Tax Act, 1961.
Under Section 80C, you can claim deductions of up to Rs. 1.5 lakhs on your overall insurance premiums, including the GST applied to them.
If you have opted for a medical rider along with your life insurance policy, you can also benefit from additional deductions on your premiums under Section 80D.
By taking advantage of these deductions in ITR Filing, policyholders can significantly reduce their income tax liability while securing their future with a life insurance policy.
In conclusion, while the implementation of GST on life insurance plans in India may have resulted in higher premium amounts for policyholders, it has also brought several positive changes to the sector. It has encouraged competition among insurers, leading to lower prices and standardisation of service tax aspects of insurance prices. Additionally, with the right deductions, policyholders can save income tax on both their premium amounts and the GST applied to them.
It is important to note that all businesses operating in India with an annual turnover of over Rs. 40 lakhs and 20 Lakhs in special category states are also required to have GST Registration This also includes insurance companies and policyholders who have opted for life insurance plans.
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