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A plan that offers long term savings and insurance in one premium.
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Insurance against medical expenses related to heart, brain, liver and Cancer.
Goods and Service Tax (GST) is an indirect tax applicable on the supply of goods and services which came into effect on July 1, 2017, replacing a set of indirect taxes. It is a destination-based tax which levies charges at the point of consumption of the goods or services, succeeding the origin-based tax. Let’s look at the impact of GST on insurance and the change in rates of different types of life insurances.
Life insurance is an agreement between an insurance company and a policyholder that guarantees payment or compensation in case of death. In return, the policyholder pays a fixed premium for a specific period of time. There are various types of life insurances available in the market such as term insurance, endowment plan, health insurance and many more.
In life insurance, the premium paid goes towards the risk coverage and the savings. The policyholders previously paid taxes only for the risk factor but after the introduction of GST, the premium rates will be increasing with taxes being levied on the entire premium.
Term insurance is a life cover where the policyholder pays the premium for a defined period. The policyholders used to pay 15% taxes on their premium towards term insurance but now the GST on life insurance has been increased by 3%. The total tax that has to be paid towards term plans would be 18%.
The tax applicable on endowment plans was 3.75% with a renewal charge of 1.8%. But after the tax regime, the GST on life insurance premium stands at 4.5% for the first year of the endowment plan with 2.25% tax on renewal of plan.
Here are the life insurance GST rates that are applicable now in comparison to the service taxes levied before the tax regime:
| Insurance Product | Taxes Applicable | Applicability | |
| Before | Now | ||
| Term Insurance | 15% | 18% | On entire premium |
| ULIP | 15% | 18% | On premium except for investment amount |
| Single-Premium Annuity Policies | 1.50% | 1.80% | On 10% of premium |
| Endowment Plans (First Year) | 3.75% | 4.50% | On 25% of premium |
| Endowment Plans (Renewal) | 1.875% | 2.25% | On 12.5% of premium |
| Health Insurance | 15% | 18% | On entire premium |
| Car Insurance | 15% | 18% | On entire premium |
| Riders Premium | 15% | 18% | On entire premium |
1.The gross life insurance premium will be reduced due to the amount allocated for investments or savings on account of the policyholder, following years.
2. For single premium annuity plans, policyholders will have to pay GST on 10% of the premium.
3. For other cases, 18% GST will be applicable on 25% of the premium paid in the first year and 12.5% of the premium paid in the
4. If the policyholder is paying the entire premium towards risk cover then 18% GST would be charged on the total premium.
Conclusion
Though the taxes have increased on life insurance plans, having insurance has become of utmost importance to secure the future of one’s family during emergencies. The GST implemented has raised the taxes by 3% on general insurance plans like health and car. Policyholders should be mindful of exclusion or inclusion of GST while comparing the prices of the insurance premiums.
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Ref. No. KLI/22-23/E-BB/999
Ref. No. KLI/22-23/E-BB/490
