4 min read
Updated on Mar 17, 2023
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% **|
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.
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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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