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Goods and Service Tax

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Definition:

Goods and Service tax is the tax levied by the government on goods and services sold. The service tax falls under the category of indirect tax.

Description:

India is in the race to rank amongst the developed nations of the world. There are several factors, pulled together that pushes a country ahead making it globally competitive. GST is just a thread that improves India’s competitiveness as it has introduced one tax system. The tax system has simplified the process of doing business that are engaged in offering services and goods.

Insurance is a service sector that assures people to offer financial protection when there arises a loss. The service is guaranteed1 against the premium paid by the insured. The insurance company levies GST for the service they offer.

These are the four GST types:

Integrated Goods and Service Tax (IGST)
State Goods and Service Tax (SGST)
Central Goods and Service Tax (CGST)
Union Territory Goods and Service Tax (UTGST)

In life insurance policies, the GST is applied based on the type of the policies. As for a term plan and ULIP, GST applied is 18%. But for traditional life insurance policies like endowment plans, GST is applied distinctly. For the first year, GST is 4.5%, while GST applied is 2.25% in the subsequent years. Under the single premium payment policies, GST is applied at 1.8%.

Example:

Rahul, aged 21 years, purchased a term insurance policy for a policy term of 25 years. The annual premium was Rs.6500/-.which is exclusive of 18% of GST. Now with GST, the total premium payable will be Rs.6500+18%GST on Rs.6500= Rs.7670/-.

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