Impact of GST on Life Insurance in India
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Impact of GST on Life Insurance in India

The premium rates went up after the GST was implemented because the entire premium was taxed. Read more about the effects of the GST on term insurance and the cost of life insurance.

  • Dec 16, 2019
  • 18,470 Views

)Goods and Service Tax (GST) is an indirect tax applicable to 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. But first, let’s look at the impact of GST on insurance and the change in rates of different types of life insurance.​

Impact of GST on Life Insurance Premium

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 increased, with taxes being levied on the entire premium.

Impact of GST on Term Insurance

Term insurance is a life cover where the policyholder pays the premium for a defined period. The policyholders pay 15% taxes on their premium towards term insurance, but now GST on term insurance has increased by 3%. So the total tax to be paid towards term plans would be 18%.

Impact of GST on Endowment Plan

The tax applicable on endowment and savings plans was 3.75%, with a renewal charge of 1.8%. But after the tax regime, GST on life insurance premiums stands at 4.5% for the first year of the endowment plan with a 2.25% tax on renewal of the plan.

Impact of GST on Health Plan

After the updated GST is implemented, medical or health insurance plans will be more expensive, such as medical policies for senior citizens. It will attract an increase of 3 percent in its tax regime, making it 18 percent, which will be charged on the premium from 1st July 2017. Currently, health insurance policies (standalone as well as a family health plan) charge 15 percent as the service tax on the premium.

Impact of GST on Travel Insurance

The new GST will go into effect on July 1 and will impose a 3% surcharge for those who intend to go overseas in the near future. Instead of the previously in place 15% service tax, the consumer will now be required to pay 18% GST. Therefore, if you want to avoid paying more, purchase or renew your travel insurance before July 1, 2017.

Impact on GST of General Insurance

A contract between an insurer and an individual that guarantees a certain amount of money as reimbursement for losses brought on by natural or man-made events is also referred to as a general insurance policy. GST for insurance will be provided for automobiles, homes, vacations, and other things.

GST Rates Before and Now:

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

Impact of GST Rules on the Business of Life Insurance

1. The gross life insurance premium will be reduced due to the amount allocated for investments or savings on the policyholder’s account following years.

2. For single premium annuity plans, policyholders must 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 has raised the taxes by 3% on general insurance plans like health and car. Policyholders should be mindful of the exclusion or inclusion of GST while comparing the prices of the insurance premiums.

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