GST has to be paid on life insurance policy, here are the rates

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    GST has to be paid on life insurance policy, here are the rates


    GST: Different GST rates are applicable on insurance policies which you should keep in mind as it increases the cost of buying the policy.

    Do you know that you also have to pay Goods and Services Tax (GST) while buying life insurance policies?

    Interestingly, one GST rate is not applicable for all types of life insurance policies, as in some cases the rate may be different depending on the type of policy as well as the year of the policy.

    How the different rates applied on these policies increase the cost of buying insurance. Let’s take a look at this.

    Term insurance

    Term policies, which are considered to be the cheapest type of insurance. 18% GST is levied on these.

    So, if your annual premium for a term plan is Rs 17,700, you pay Rs 15,000 for basic coverage and Rs 2,700 for GST.

    If you opt for riders like critical illness or personal accident cover, you will also have to pay GST on the additional premium.

    “GST is levied at the rate of 18% on the total premium of the term plan,” says Tarun Rustagi, Chief Financial Officer, Canara HSBC OBC Life Insurance.

    Unit Linked Insurance Plan or ULIP

    Unlike term plans, ULIPs are policies related to the volatility of the stock market and have two parts – investment and insurance. In these policies, GST is not levied on the entire premium but on the amount deducted for various charges.

    Hence, GST is not levied on the money invested after various deductions. “GST is levied at the rate of 18% on premium or various charges deducted from the fund value in Unit Linked Insurance Plans,” Rustagi said.

    Traditional plan

    The old schemes charge GST based on the year of purchase of the policy. The rate for the first year is higher as compared to the subsequent years.

    Amit Sharma, Founder & CEO eExpedise Healthcare said “GST for first year premium in traditional plans is 4.5% and for subsequent years is 2.25%, so it can be seen that the GST purchase in traditional policy is Rs. Depends on the year”.

    Do you get tax exemption on the GST paid?

    One of the frequently asked questions among taxpayers is whether the income tax has been deducted on the life insurance premium.

    Whether GST is included in that amount, then let us tell you that GST is also included in the income tax exemption given on premium.

    These benefits can be encashed under section 80D for health insurance plans, while tax exemption is given under section 80C for ULIPs, term insurance and traditional policies.

    Rustagi said, “Under the Income-tax regulations, the payment of life insurance premium has been kept out of income tax under Section 80C of the Income Tax Act.

    Any premium you pay on life insurance under 80C is exempt from income tax deduction. Hence the GST paid on the life insurance premium will be exempt from income tax deduction for the taxpayers”.

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