GST on Insurance: Everything You Need to Know

Goods and Services Tax or GST is applicable to the supply of various goods and services. In case of insurance, it is considered as a type of financial service. So GST on insurance is applicable on the supply of the service of insurance to any policyholder. GST is applicable to all insurance products and it has replaced the earlier service tax that was applicable earlier.

So, GST on insurance is applicable to insurance premiums at the applicable rate depending on the type of insurance plan that has been chosen. Read on to know the GST rates applicable to different types of insurance policies in India.

Before GST came into existence, insurance policies featured various indirect taxes with different rates such as Swachh Bharat Tax, Basic Service Tax and Krishi Kalyan Cess.

Basic understanding of GST rates on insurance premium for different types of insurance policies is as follows:

 Note: Above mentioned rates are effective rate of GST and has been shared in simplified language for understanding and educational purpose only.

As you can see, GST rates on different insurance plans can vary. Both new and existing policyholders must comply with the new GST rules for insurance. Here’s what you should know-

1.  Term insurance plans are the most economical life insurance form; around 18% GST is applied to the premiums. This means that if you pay around Rs. 100 as a premium, you will have to pay an additional Rs.18 as the tax.
2. For ULIPs, the GST rates are the same- 18%. However it is applied on Various charges including fund management charges.
3. For endowment plans, GST rates and structure differ. On the first-year premiums, the GST rate is 4.5%, whereas, from the 2nd year onwards, the GST rate is 2.25% on subsequent premiums.
4. The GST rate is 1.8% on the lump sum paid for single premium annuity policies.

Some insurance policies in India are exempt from GST. Here’s a list of popular government insurance schemes that are exempt from GST on insurance:

1. Aam Aadmi Bima Yojna
2. Pradhan Mantri Jan Dhan Yojna
3. Insurance is provided to the Navy, Army and Air force by the state and central government
4. Varishtha Pension Bima Yojna
5. Pradhan Mantri Vaya Vandana Yojna

Every tax plan includes various deductions and offers room to save some percentage. The same goes for life insurance premiums. These particular deductions will help you save tax and avail of other benefits on the insurance premium you are paying in a year. The GST applicable to your insurance premium can also offer tax benefits depending on the type of insurance policy purchased. For instance, GST on term insurance and other life insurance premium is eligible for Section 80C tax benefit. On the other hand, GST on health insurance or mediclaim policies is eligible for tax benefits under Section 80D of the Income Tax Act. However, insurance policies like car insurance or home insurance do not offer tax benefits and GST paid for these types of insurance plans.