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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.
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.
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%|
|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% *|
|LIC Annuity Plans||First Year Premium||4.50% *|
|Single Premium||1.80% **|
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.
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
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%|
GST exemptions were established by the GST Council under some insurance schemes as well as services. Those are as follows:
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.
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).
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.
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.
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 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.
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.
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.
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
2.25%- 2nd year onwards
|LIC Pension Plans||Premium||3.75%-1st year
1.88%- 2nd year onwards
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:
|Pension plans and Insurance services||99713|
|Life insurance services||997132|
|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|
Browse Mahindra PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance, and Investment section. You can visit Mahindra PayBima to Buy Insurance Online.
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.
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