Complete Guide to GST on Life Insurance Premiums

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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