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Complete Guide to GST on Life Insurance Premiums

We know what GST is. It is the tax we pay when we purchase any goods or services. Goods and Services Tax (GST) was launched in India on July 1, 2017, with the aim to simplify taxation.

Author:IndiaFirst Life | Date:30 Oct 2023 | Time:16:50:00

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We know what GST is. It is the tax we pay when we purchase any goods or services. 

Goods and Services Tax (GST) was launched in India on July 1, 2017, with the aim to simplify taxation. The ideology was to have ‘one nation one tax’. It would simplify cascading taxes (service tax, central excise duty, and Value Added Tax (VAT)), for all goods and services, especially if they were produced and sold in different states.   

Prior to 2017, insurance attracted 15% service tax. However, as insurance is a financial service, the government-imposed GST on insurance, increasing the insurance GST rate amount by 3%. The applicable rates differ for each insurance instrument and across different types of policies.   

Types of Insurance and GST Applicability 

The GST on life insurance premiums depend upon the type of policy you buy: 

Term Insurance premium attracts 18% GST. This means that for every Rs.1000 of premium, you pay Rs. 180 as GST. If you add any additional riders like accidental death benefits, the extra premium will also attract 18% GST. 

ULIP combines life insurance and investments, therefore, the whole premium amount, which may include fund management services and all ULIP charges, attracts 18% GST. 

Endowment Plans Effective GST rate is 4.5% in the first year, which then falls to 2.25% in the following years. 

Single Premium Annuity Plans require you to invest a single lump sum amount, hence effective GST rate is 1.8% effective  

GST Rates on Insurance Premiums

Input Tax Credit concerning GST on insurance 

Insurance companies can claim Input Tax Credit for GST. But when it comes to insurance premiums, this credit cannot be used to offset the GST liability that they have from other instruments.  

GST Calculation on Insurance Premiums 

We mentioned that the two types of life insurance policies calculate GST differently. Here are some examples: 

  • For an endowment plan policy with a premium of Rs. 2,00,000, the GST component is 4.5% of this premium, which amounts to Rs. 9000. After the first year, the GST component will drop to 2.25%, which is Rs. 4500.  However, in the case of a single premium annuity plan, it will face tax at 1.8% GST. So, a premium of Rs. 5 lakhs will attract Rs. 9000 as tax.  

  • ULIP or Unit Linked Insurance Plan is technically an investment plan too. So, GST is not applicable on the premium. The 18% GST is levied on all ULIP charges such as fund management charges, premium allocation charges etc.  

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IndiaFirst Life

Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 663 crore, is one of the country's youngest life insurance companies. Our key differentiators are our simple, easy-to-understand products that are fairly-priced and efficiently serviced.We offer a diversified suite of over 46 need-based products & Riders (as of 31st March 2022) catering to varied customer segments, leveraging multiple distribution capabilities and augmenting various investment options. In all, propositions under the categories of Protection, Assured Savings, Wealth, Pension, Health and Group Funds for Employee Liabilities form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and competitively priced with risk management being our core strength.

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