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Effect of GST on insurance premium

The Goods And Services Tax (GST) came into effect from 1st July 2017. The introduction of GST affected the insurance sector; specifically on insurance premiums. The cost of getting insured generally went up with the introduction of this tax, making insurance more expensive than before.

Let us understand what are some of the benefits of GST and then discuss the price changes in premium.

Benefits of GST

  • Tax benefit of up to 1.5 lac per anum is provided as a deduction (including GST amount) under Section 80C and 80D.
  • Reduction in corruption will have an overall positive impact in most sectors.
  • Various experts have touted that GST will make insurance and related services cheaper going ahead.

Effect of GST on insurance premium

Effect on life insurance premium

Life insurance premium pre GST was taxed at 15% including Swacha Bharat Cess and Krishi Kalyan Cess. Post GST, life insurance premium is now taxed at 18%. Thus 3% additional taxation has been levied on life insurance premiums. Term Insurance and Unit Linked Plans (ULIPS) are also similarly taxed. Endowment plans are taxed at 4.5% for the first year and 2.25% for subsequent years. Single premium annuity policies are taxed at 1.8%.

Example

Let us understand the GST taxation process with the help of a simple example. Let us assume that Mr. Ajit purchased a health insurance plan from ICICI Lombard, costing him an annual premium of INR 10000 (before GST). He will have to pay a GST of 18% on 10000 I.e 1800 as GST. Thus bringing his total premium payable to INR 11800.

Effect on General Insurance Premium

General insurance and health insurance premiums have also been hiked similarly under GST. Pre GST the taxation was 15%, and post GST the taxation has been elevated to 18%, thus making health and general insurance products more expensive.

Government schemes exempted from GST

Various government schemes are exempted from GST. The primary reason for these exemptions is that most of these schemes are targeted to the low-income group bracket, and the government wants to provide relief to the same. Schemes exempted from GST:-

  • Aam Aadmi Bima Yojana (AABY)
  • Janashree Bima Yojana (JBY)
  • Pradhan Mantri Vaya Vandan Yojana
  • Varishtha Pension Bima Yojana (VPBY)
  • Pradhan Mantri Jan Dhan Yojana
  • Janashree Bima Yojana (JBY)
  • Insurance policies provided to armed forces (By Government)
  • Micro life insurance policies

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