GST Rates & Applicability on Life Insurance Policy

The Goods and Services Tax (GST) has been a widely discussed topic in India since it was first introduced in 2010. It has affected almost every sector across the country in some way through its evolving regulations.

Similarly, the insurance sector in India is no exception to its effects. GST applies to the major insurance policies that people purchase in India. Consequently, the premiums you pay today are much higher than before. This article will discuss GST on the life insurance premium and its impact. Keep reading to learn more.

GST in India is applicable for most products and services. Consequently, it is also valid on life insurance premiums and the impact of GST varies on the type of insurance plan.

With the introduction of GST,  you have to pay an 18% tax on the premiums instead of the 15% service tax earlier. As a fact, the end consumer of the insurance plan was affected by the steep increase in premiums. However, it has also made significant improvements in the insurance sector.

For instance, insurers now offer competitive prices on insurance to balance out the premium costs, along with increased transparency in transactions. Additionally, standardised tax rates allow you to browse through various features and plans without worrying about irregular premium hikes.

A GST percentage slab refers to the category of rates defined to keep the transparency of taxation between the buyers and sellers. Each slab contains different types of items or services and their tax rate based on specific parameters. These rates are determined by the GST council and cannot be changed by the sellers or manufacturers. However, the council may revise the percentages periodically.

There are four GST slabs prevalent in India: 5%, 12%, 18% and 28% GST. Naturally, the rates on luxury products are higher than the essential products and services. Financial services such as life insurance policies fall under the 18% GST slab.

It is possible to claim tax exemption for the GST you have paid along with your life insurance policy premiums. There is a provision as per Sections 80C and Section 80D of the Income Tax Act of 1961, according to which certain specified taxpayers can claim a tax deduction on the total amount paid to their insurance provider. This applies to specified insurance schemes.

In the case of a life insurance plan, you can claim the premium amount, including the GST, to a maximum of ₹1.5 Lakhs as per Section 80D.

On the other hand, you can also avail of the input credit under GST if you are covered under the GST Act. That means it can be availed by a manufacturer, agent, supplier, e-commerce operative, aggregator, or among the ones registered under GST.

A life insurance plan is a crucial financial planning tool for you and your family. Therefore you should be careful of the inclusions and exclusions of GST when you compare the different plans. Moreover, tax exemption on GST on life insurance premiums is also available under Income Tax Act for all types. Therefore, when evaluating insurance premium pricing, you should keep the exclusion or inclusion of GST in mind.