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.
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%.
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.
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.
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:-
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