What is GST Rate on LIC Premium?
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Goods and Services Tax was introduced in India in 2017 and it soon made headlines. The reform touched almost all sectors as well as the economy. The implementation of one such concept was not easy for the Government of India. However, it was proved to be successful enough. So, let us discuss what GST is and its impact on LIC premiums.
- What is GST?
- Effect of GST on Life Insurance Premiums
- GST Rate on LIC Premium
- Sample Examples of GST Amount charged on LIC Policies
- GST Charged on Several Other Components
- GST Rates: Before and Now
- Exemption of GST
- Taxation Possibilities on LIC Plans Under GST
- Taxation Possibilities on LIC Plans Under GST
- GST Imposed on Premiums of LIC Term Plans
What is GST?
Goods and Services Tax is an indirect tax that was brought into the picture to replace several indirect taxes in the country like VAT, excise duty, service tax, and many more. As GST was implemented, the service tax became GST’s part. Nevertheless, along with so many other industries, GST affected the insurance industry.
Effect of GST on Life Insurance Premiums
While we try to comprehend the effect that GST left on Life Insurance premiums. However, for that, we also need to understand the way Life Insurance policies work. Basically, Life Insurance policies are of three types. You can choose from them. And they are Unit Linked Insurance Plans (ULIPs), Term insurance plans, and Endowment policies. Before the introduction of the GST, the premiums paid were considered service tax and were charged at 15%. After GST was introduced, all those rates were replaced. The LIC GST rate is now calculated at 18%. This has resulted into an increase in the premium charges.
GST Rate on LIC Premium
The GST rates change as per the type of policy. Mentioned below is the table that explains the LIC premium GST rates.
| Type of LIC Policy | GST Charged On | GST Rate |
||
| LIC Life Insurance (New Business Premium including Single Premiums) | Premiums | 4.50% * |
||
| LIC Term Insurance | Premiums | 18% |
||
| ULIPs | Charges | 18% |
||
| Renewal Premium of LIC’s Life, Pension and Annuity Plans | Premiums | 2.25% *** |
||
| LIC Health Plans | Premiums | 18% |
||
| LIC Pension Plans (New Business Premium including Single Premiums) | Premiums | 4.50% * |
||
|
First Year Premium
Single Premium |
4.50% * 1.80% ** |
Sample Examples of GST Amount charged on LIC Policies
Here is a sample illustration to understand GST on LIC policies better:
Let’s say you pay a premium of INR 10,000 per year. As per the GST rates, you will pay the below amount on different LIC policies.
- On-Term Insurance Plans –18% GST applies to LIC term plans. Hence, the insured will pay INR 1800 towards GST on an annual premium of INR 10,000 on a term insurance policy.
- On ULIPs – GST is not charged on ULIPs on the premiums paid, rather 18% GST is imposed on the fund management charges.
- On Life Endowment Policies – Under these policies, the GST applicable is 4.5% on the premium paid in the first year. For the premiums paid subsequently, a 2.25% GST is imposed. So, on the premium of INR 10000, you will pay a GST of INR 450 for the first time and INR 225 subsequently.
- Single Premium Annuity Plans – Since in annuity plans, you pay the premium in lump sum amount, the GST is imposed to this lump sum amount at a 1.8% GST rate. Let’s say you purchased an annuity for INR 10 Lakh, so the applicable GST will be INR 18,000.
GST Charged on Several Other Components
Other than the premiums, GST charges are implemented on delayed premium payments, extra premiums for riders, charges that have been recovered from the policyholders, and many more
- A GST rate of 18% is applied on the interest paid against delayed premium payments
- A GST rate of 18% is applied on Cheque Dishonor Charges including postage
- GST is applied in alteration fees, quotation fees, duplicate policy preparation, the fee charged for policy termination or changing nominations, and many more.
GST Rates: Before and Now
Let us take a look at the LIC policy GST rate before it came into effect vs. now.
| Insurance product | Applicability | Prior to GST | Currently |
| Single-Premium Annuity Policies | On 10% of premium | 1.50% | 1.80% |
| Term Insurance | On entire premium | 15% | 18% |
| Endowment Plans (First Year) | On 25% of premium | 3.75% | 4.50% |
| Endowment Plans (Renewal) | On 12.5% of premium | 1.875% | 2.25% |
| ULIPs | On premium except for investment amount | 15% | 18% |
| Car Insurance | On entire premium | 15% | 18% |
| Health Insurance | On entire premium | 15% | 18% |
| Riders Premium | On entire premium | 15% | 18% |
Exemption of GST
GST exemptions were established by the GST Council under some insurance schemes as well as services. Those are as follows:
- Aam Aadmi BimaYojana(AABY)
- Janashree BimaYojana(JBY)
- Pradhan Mantri Jan Dhan Yojana
- Life micro-insurance products with a maximum cover of Rs. 2 Lakhs (as approved by the Insurance Regulatory and Development Authority)
- Varishtha Pension BimaYojana
- Pradhan Mantri Jeevan Jyoti BimaYojana (PMJJBY)
- Life insurance by way of the National Pension Scheme (NPS)
- Pradhan Mantri Vaya Vanadan Yojana
- Other insurance schemes of the State Government – advised by the Government of India on the recommendation of GSTC.
The effect of GST is not very much though, but the existing as well as the new policyholders still have to bear the extra costs. GST does not have any effect on the calculation of several life insurance policies since the important parameters remain the same.
Taxation Possibilities on LIC Plans Under GST
Most insurance plans have two aspects – one is related to investment and the other is related to risk protection. GST is levied only on the protection against risk. Hence, the rates of GST applied to the insurance premiums of various policies of life insurance also vary depending on the category of life insurance plans. These include endowment plans, term plans, pension policies, and Unit Linked Insurance Plans (ULIPs).
GST Imposed on Premiums of LIC Term Plans
These are the most cost-effective plans and they only provide death benefits in case of death of the insured during the policy period. 18% is the GST imposed on premiums of term insurance plans.
So, on an INR 10,000 premium, the GST applicable is INR 1,800 (18% of 10,000). Also, 18% GST is levied on the extra premium paid for the rider/ add-on such as the accidental death add-on.
GST on Premiums of LIC Endowment Plans
These LIC plans are dual benefit plans with a combination of insurance and investment. Here, a 4.5% GST is levied on the premiums in the first year of the policy, while a GST of 2.25% is imposed on subsequent premiums. So, on the first-year premiums of INR 10000, you will pay a GST of INR 450 and INR 225 subsequently.
GST on Premium of LIC Annuities or Pension Plans
Under annuity plans, you pay the premium in a lump sum amount. Hence, the GST is imposed on this lump sum amount at a 1.8% GST rate. Let’s say you purchased an annuity for INR 10 Lakh, so the applicable GST will be INR 18,000.
GST on Premium of ULIPs under LIC
GST is not charged on ULIPs on the premiums paid, rather 18% GST is imposed on fund management. These charges include policy administration charges, premium allocation charges, and charges on mortality among others.
As you know, a part of the premium of a ULIP is invested in different investments, while the remaining is used for insurance coverage. The invested part doesn’t come under the purview of any GST.
GST on the Premiums of LIC Health Plans
18% GST is imposed on the premiums of LIC health insurance plans, including family as well as individual plans. So, on a premium of INR 10,000, the GST levied is 18% which comes to INR 1,800.
GST Imposed on Other Elements of LIC Plans
Various other components are involved while imposing GST on LIC policies in addition to the premiums charged, such as 18 % GST on Late payment of Fees/Premiums, 18% GST on CDA or Cheque Dishonour Charges, and GST levied on the Charges Recovered from alteration fees, duplicate policy preparation, quotation fees., etc.
SAC Code and GST Rate on the Premium of LIC Insurance Policies
GST rates applied on LIC life and health insurance plans are mentioned below:
| Policy type | Supply value | Pre-GST service tax | GST rate |
| LIC Term plans and add-ons | Premium | 15% | 18% |
| LIC Life Insurance Plans and Endowment Plans | Premium | 3.75%-1st year 1.88%- 2nd year onwards |
4.5%-1st year 2.25%- 2nd year onwards |
| LIC Pension Plans | Premium | 3.75%-1st year 1.88%- 2nd year onwards |
4.5%-1st year 2.25%- 2nd year onwards |
| LIC Single premium annuity plans | Premium | 1.5% | 1.8% |
| Unit Linked Insurance Plans (ULIPs) | Charges | 15% | 18% |
| LIC Car, Bike, and Health Plans Insurance | Premium | 15% | 18% |
The SAC codes applied to insurance policies are mentioned below:
| Description | SAC Code |
| Pension plans and Insurance services | 99713 |
| Life insurance services | 997132 |
| Reinsurance services | 99714 |
| Accidental death insurance services | 997133 |
| Aviation, marine, and transport insurance services | 997135 |
| Motor vehicle insurance services | 997134 |
| Non-life insurance services | 997139 |
| property insurance services | 997137 |
| Travel and Freight insurance services | 997136 |
GST Rate on LIC Premiums
Yes, GST is charged on insurance premiums and many other services.
The GST you pay on insurance premiums can be claimed as a deduction from your income. You can save taxes.
On health insurance, a GST of 18% is levied.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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