Effective from 1st July 2017, GST replaced the existing service tax applicable for your insurance premiums. Hence, let us see the applicable GST Rates on Life Insurance, Health Insurance and Car Insurance Premium.
What is GST?
Many of you might have already aware about GST. GST is an indirect tax which was introduced from 1st July 2017 in India. This GST replaced the existing indirect taxes like service tax and VAT.
Earlier tax was levied at each stage separately by the central government and the state governments at varying rates, on the full value of the goods. However, under the GST system, tax will be levied only on the value added at each stage. Hence, this is called as “one nation, one tax”.
GST Rates on Life Insurance, Health Insurance and Car Insurance Premium
Earlier for the insurance premium, you used to pay service tax based on the product you buy. However, now service tax is replaced with GST rates. Hence, it is important for all you to understand the applicable GST Rates on Life Insurance, Health Insurance and Car Insurance Premium.
For GST taxation purpose, the insurance products are categorized as below.
# Term Life Insurance
They are the pure Life Insurance Products. Here you pay the premium to the cost of risk the insurance company taking on your health. They are cheap and one must purchase such products if someone is financially dependent on him or her. (Ref:-Top 5 Best Online Term Insurance Plans in India in 2017)
# ULIP Plans
ULIP or Unit Linked Insurance Plans are the products which combine the insurance and investment.
# Endowment, Money Back, Traditional Plans, Pension or Annuity Plans
In this category, you will find all traditional plans, endowment plans, money back plans, regular pension or annuity plans.
# Single Premium Annuity Plans
Such plans are pension products where you pay as a lump sum.
# Health Insurance Premium
Premium you pay towards your health insurance coverage.
# Motor Insurance Premium
The premium you pay towards your car or bike insurance premium
# General Insurance Premium
Products that are apart from Health and Motor Insurance.
Now let us look at the applicable GST Rates on Life Insurance, Health Insurance and Car Insurance Premium. I will try to explain the same through below chart.
You noticed two things. One regarding endowment plans. The service tax is high in the first year. However, the same is reduced from next year onwards.
The second most important thing to notice is regarding ULIP Plans. the GST is not applicable on the whole premium you pay. Instead, it is applicable only on the premium which is exclusive of the investable amount. Let me give you an example to make you understand.
Few Points to understand-
# GST rate will also be applicable on delayed premium late fees or interest. GST will be applicable on Interest charged on delayed receipt of premium. The rate will be applicable according to the type of premium collected.
# GST rate will be applicable on CDA (Cheque DishonorCharges) Charges also inclusive of postage at the rate of 18%.
# GST rate will also apply on any charges which life insurance companies collect from you like alteration fee, quotation fee or duplicate policy preparation charges, granting a written acknowledgment for receipt of notice of assignment or registering cancellation or change of nomination.
GST exempted Insurance products in India
GST will not apply for certain products. The list of such products is as below.
- Janashree Bima Yojana(JBY)
- Aam Aadmi Bima Yojana (AABY)
- Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees;
- Varishtha Pension Bima Yojana
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Pradhan Mantri Jan Dhan Yojana
- Pradhan Mantri Vaya Vanadan Yojana
- Any other insurance scheme of State Government as may be notified by Government of India on the recommendation of GSTC.
Hope this post will clear your doubts regarding applicable GST Rates on Life Insurance, Health Insurance and Car Insurance Premium.