GST, or the Goods and Services Tax, is one of the most commonly discussed topics in the Indian tax world. Ever since its inception, GST and its evolving regulations have had a significant impact on various industries, including the insurance sectors in the nation.
Particularly, the Goods and Services Tax also influenced some of the essential forms of life insurance policies significantly that people primarily seek. It is a fact that GST involves service tax applicable to the insurance sector. Therefore, the existence of GST has led to an upsurge in the amount of the premium amounts. Nevertheless, the introduction of the LIC premium GST rate has had several positive effects on the insurance industry, too.
So, without any further ado, this post will discuss the influence of the LIC premium GST rate. Also, you can uncover how you may manage to save a significant tax in India when buying insurance premiums.
What Do You Mean By GST?
Before going into the details of the LIC premium GST rate and its impact on the insurance sector, it is wise to learn about GST and its meaning. Essentially, GST is a type of indirect tax that came into existence in 2017. The core objective of imposing GST is to alleviate the complex landscape of our nation’s different types of indirect taxes.
The indirect taxes were believed to be convoluted, redundant, and exploitative. So, it used to burden the consumers in many ways. Therefore, the introduction of GST became an umbrella term for all those indirect taxes and simplified the process of indirect taxation considerably.
What is the Necessity for GST?
In contrast to direct taxes, which have no transferable responsibility, indirect taxes do. VAT, for instance, is levied by the retailer and passed on to the client, increasing the final cost of the item. The cascading effects of multiple taxes have been eliminated with the GST on LIC premium. The entire taxing process will be streamlined with the introduction of LIC premium GST rate, which would help simplify the computation of taxes due.
Impact of GST on Life Insurance Premiums
Insurance falls under the umbrella of financial services. Consequently, life insurance policies are subject to GST, akin to other goods and services you may consume.
Before the introduction of GST, a 15% service tax was imposed on life insurance premiums. With the advent of GST, life insurance premiums now bear an 18% tax rate as per the updated regulations. This alteration has led to heightened premium rates for all life insurance policies due to the implementation of the Goods and Services Tax (GST), resulting in an increased financial burden on the end consumer.
However, this surge in LIC premium GST rate has, in fact, brought about advantages for the life insurance market. How, you might ask? It has fostered a sense of competition among insurance providers, enabling them to offer life insurance policies at more competitive prices. Consequently, this has led to a growing customer base as they are now attracted to these lower-priced policies.
How Does GST Differ from Insurance Types?
As evident, there is variation in LIC premium GST rate applied to different insurance plans, and both new and existing policyholders need to adhere to the updated GST regulations in the insurance sector. Here’s a breakdown of what you should be aware of:
- Term insurance plans, known for their cost-effectiveness in life insurance, are subject to an 18% GST rate on their premiums. In practical terms, if your premium is approximately Rs. 100, you will need to allocate an additional Rs. 18 to cover the tax.
- Universal Life Insurance Plans (ULIPs) are also subject to an 18% insurance premium GST. However, this tax is applied to various charges, including fund management charges.
- When it comes to endowment plans, the GST rates and structure exhibit variation. The GST rate for first-year premiums is 4.5%, while from the second year onwards, subsequent premiums incur a 2.25% GST rate.
- For single premium annuity policies, a LIC premium GST rate of 1.8% is applied to the lump sum payment.
Policies Exempt from GST on Insurance
In India, specific insurance plans are GST-exempt. The following is a list of well-known government insurance programmes that are free from GST on life insurance premium:
- Pradhan Mantri Jan Dhan Yojna
- Aam Aadmi Bima Yojana
- Insurance is provided to the Army, Navy, and Air Force by the central and state governments.
- Pradhan Mantri Vaya Vandana Yojna
- Varishtha Pension Bima Yojana
GST Rates Before and Now
These are the current life insurance GST on insurance premiums that are in force, as opposed to the service taxes that were applied before the tax regime:
| Insurance Product | Taxes Applicable | Applicability | |
|---|---|---|---|
| Before | Now | ||
| Term Insurance | 15% | 18% | On entire premium |
| ULIPs | 15% | 18% | On premium except for investment amount |
| Single-Premium Annuity Policies | 1.50% | 1.80% | On 10% of premium |
| Endowment Plans (First Year) | 3.75% | 4.50% | On 25% of premium |
| Endowment Plans (Renewal) | 1.875% | 2.25% | On 12.5% of premium |
| Health Insurance | 15% | 18% | On entire premium |
| Car Insurance | 15% | 18% | On entire premium |
| Riders Premium | 15% | 18% | On entire premium |
What are the Advantages of GST for Insurance Buyers?
The main advantages are as follows:
- Although the GST on insurance premiums will result in an overall increase in policy prices, whether they pertain to general or life insurance, it will intensify competition among insurers. In order to entice potential buyers, insurers are likely to reduce rates by trimming expenses associated with policy issuance and other cost-contributing elements.
- Furthermore, they are poised to enhance the level of service offered during the purchase of insurance products and the claims process. This presents a positive scenario for consumers who often prioritize price but overlook other factors when acquiring insurance plans.
- What consumers need to grasp is that the premium is not the sole factor to consider when procuring any insurance policy, be it car insurance or health insurance. The primary focus should be on the protection it offers to one’s loved ones in the event of unforeseen calamities and the range of services provided by the insurer throughout the policy’s duration and claims processes.
Consequently, the GST applied to life insurance premiums might incentivize insurers to enhance their offerings by improving service quality and enhancing the overall customer purchasing experience.
Save Taxes on Life Insurance Premiums Paid
While the GST on insurance premiums may have led to an increase in premium costs for life insurance policies, there are still several tax deductions available in India to help mitigate your income tax liability. These deductions apply to both the premiums you pay for your life insurance policy and the GST associated with those premiums.
The most utilized tax deductions in India for reducing your income tax, particularly concerning life insurance premiums, are found in Sections 80C and 80D of the Income Tax Act, 1961. Under Section 80C, you can claim deductions for the total insurance premiums you pay, including the GST component, up to a maximum of Rs. 1.50 lakhs. Simultaneously, Section 80D offers additional premium deductions if you opt for a health rider alongside your life insurance policy.
Conclusion
The general influence of GST on life insurance premium remains modest, even though both current and prospective policyholders will need to absorb the extra expense. Consequently, GST should not significantly affect the evaluation of different life insurance policies since the essential criteria will remain unaltered.
The primary purpose of life insurance, which is to offer financial security to beneficiaries and policyholders, remains constant. The fundamental requirement for any individual’s life insurance should be to ensure that it offers the dependent family an adequate financial cushion to uphold their standard of living and achieve their financial objectives in the event of the individual’s absence.