In 2017, India introduced the Goods and Services Tax, which had a significant impact on the country's economy and various sectors. This story focuses on discussing the introduction and impact of GST on LIC premiums in India.
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
LIC Life Insurance
LIC Term Insurance
Renewal Premium of LIC’s Life, Pension and Annuity Plans
LIC Health Plans
LIC Pension Plans
LIC Annuity Plans
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
1. A GST rate of 18% is applied on the interest paid against delayed premium payments
2. A GST rate of 18% is applied on Cheque Dishonor Charges including postage
3. GST is applied in alteration fees, quotation fees, duplicate policy preparation, the fee charged for policy termination or changing nominations, and many more.
Endowment Plans (First Year)
Single-Premium Annuity Policies
Prior to GST
Endowment Plans (Renewal)
GST exemptions were established by the GST Council under some insurance schemes as well as services. Those are as follows:
2. Janashree BimaYojana(JBY)
1. Aam Aadmi BimaYojana(AABY)
3. Pradhan Mantri Jan Dhan Yojana
4. Life micro-insurance products with a maximum cover of Rs. 2 Lakhs
5. Varishtha Pension BimaYojana
6. Pradhan Mantri Jeevan Jyoti BimaYojana (PMJJBY)
7. Life insurance by way of the National Pension Scheme (NPS)
8. Pradhan Mantri Vaya Vanadan Yojana
9. Other insurance schemes of the State Government advised by the Government of India on the recommendation of GSTC.