From July 1, 2017, the Indian government introduced what has been called the biggest tax reform in India after the declaration of independence, the Goods and Services Tax (GST). It is claimed to have a positive impact on our economy, but as far as the life insurance in India is concerned, the tax has been increased from 15% to 18%. The GST on life insurance would naturally translate into a higher premium for the existing or future life insurance plans purchased after the announcement of GST in 2017. To understand the effect of GST on the life insurance policy, we will have to dig a little deeper as it is much more than an increased premium.
Does GST Affect Life Insurance Premiums?
Effect on the consumers:
As the consumers are the ones buying the life insurance policy, the ultimate burden of an increased tax slab will be borne by the consumers. The value of the supply of services concerning the life insurance policy will be:
- As per the GST on the life insurance premium, the gross premium minus the amount allocated for investment, or savings on behalf of the policyholder, if such amount is informed to the policyholder.
- Single premium annuity policies: 10% of the premium
- All other cases: 25% for 1st year and 12.5% for 2nd year onwards on the premium charged.
- GST @ 18% will apply if the whole premium is for life insurance in India.
- GST on Health insurance plan: Due to the introduction of GST, the health insurance plan will attract a tax of 18% from the previous 15 %.
- Term plan: At present, a service tax of 15 % is levied on term plans, which after GST has increased to 18%.
- ULIP plans: At present, a service tax of 3.5 % is levied on the protection part of ULIPs in the first year and 1.75% from the second year onwards. This would go up to 4.5 % in the first year and 2.25% from the second year onwards.
- Endowment plans: Currently, endowment plans attract a service tax of 3.75% on the premium in the first year of the policy and will rise to 4.5% in the first year under the new tax regime. As of now, 1.88% of the service tax is levied on the endowment plan’s premium for the second year, which is expected to rise to 2.25 % from the second year onwards after the implementation of GST.
Even after the GST, Edelweiss Tokio’s life insurance plans provide you with total protection from up to 35 critical illnesses at a cost-effective price so that the increased GST on insurance doesn’t come in your way of protecting your family. You can also avail of various tax benefits under Section 80C.