GST Impact On Life Insurance Policy Premiums Holder

GST or goods and services tax as popularly known is one of the most important regulatory change which is happening in the indirect tax space post independence.Aimed at getting away with multilevel tax structure which has been prevalent for so many years and building a new institutional structure for indirect taxes making business easy with one nation and one tax concept .The new structure came into force after multilevel discussions among the various stakeholders by a bill passed in the Parliament on 8th Aug 2016 and with final date of implementation as 1st July 2017.So from 1st day of July things are going to change completely  from the perspective of incidence, structure and calculation of indirect taxes and which would lead to the complete refurbishment of the existing tax structure in India.

 

Understanding the incidence of GST on life insurance:

We all understand the importance of life insurance and why it is required.Going by the basic definition of life insurance it is very important for any person who is a single bread earner for his /her family. In case of his/her inability to support his/her family in future due to death or any other event , the life insurance policy can take care of the financial responsibility of his/her family.

 

Based upon the requirement life insurance plans are further divided into two major categories:

1)Term plans: It is actually a pure financial risk cover based policy . The proposer of the policy pays money for premium and in case the person dies, the sum assured is paid directly to the nominee of the policy which can cater his/her financial liability

2)Endowment plans and Ulip plans  : This are specific plans which is a combination of a term cover and investment plans. It not takes care of the financial liability of the proposer but in case the person doesn’t dies he/she can also enjoy the return on investment post completion of policy term.

 

Post GST, things are going to change for life insurance policyholders a lot . Pre-GST the service tax rate that was effective on life insurance plans was 15% but post 1st July the there would be a hike of 3% which would directly affect the overall premium cost.But don’t get confused because of the hike you should keep in mind that different type of plans attract a different type of tax structure. You should keep in mind that:

1)In some types of plan the tax incidence fall on the overall premium that you play

2)In some plans, the tax incidence don’t happen on the overall plan, you pay tax on only some of the premium.

3)Taxation also varies with the premium paying term that you have opted for. One time premium policies might attract a different taxation compared to policies in which you are paying premium in a yearly or quarterly or monthly mode throughout the term of the policy.

4)The other important thing is that taxes may also differ depending on the year of the term of the policy.

Knowing about Post GST effect:

To understand about the changes that is going to come post GST implementation see the table below :

 

TYPES OF LIFE INSURANCE PLANS

TAXATION BEFORE GST

TAXATION POST GST

APPLICABILITY

Term Insurance Premium

15

18

On the entire premium amount

ULIP

15

18

On the premium amount minus the investment amount

Health Insurance Premium

15

18

On the entire premium amount

Add-on Riders Premium

15

18

On the entire premium amount

Periodicity - Single Premium

15

18

On 10 percent of the total premium. It means that the previous 1.5 percent of the total premium would be hiked to 1.8 percent of the total premium as per the updated GST rates.

Endowment Plan Premium (First Year)

15

18

On 3.75 percent of the total premium

Endowment Plan Premium (Renewal)

15

18

On 1.875 percent of the total premium

 

 

We should remember that all these new tax rate and its applicability would be for both new policies and also old policy renewals. 

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