Ch. 10: GST On Life Insurance

When you buy a life insurance policy, the insurance company promises to pay an amount of money after a set amount of time or on the happening of a specific event. When you buy term insurance, for example, the insurance company promises to pay a fixed amount of money to your family if you pass away while the policy is active.

Now, in exchange for the insurance company’s promise, you are required to make regular premium payments under the life insurance policy. Also, a GST is charged on these premium payments you make under the life insurance plan.

What exactly is GST? How does it impact life insurance policy premiums? And, is the GST the same for all types of life insurance policies? We answer these and a lot more questions - in this article. So, let’s begin!

What is GST (Goods And Service Tax)?

Goods and Service Tax, popularly known as GST, is an indirect tax that is levied on the supply of goods and services. It was passed in the parliament in March 2017 and came into effect on 1st July 2017.

GST has replaced many other complicated indirect taxes in India, such as excise duty, VAT, service tax, and so on. These indirect taxes were long seen to be unnecessary, complicated, and even exploitative, burdening the end consumer unreasonably. With the introduction of the GST, all such taxes were combined and brought under a single, uniform roof, greatly streamlining the indirect taxation process.

Impact of GST on Life Insurance Premiums

Insurance is a service - and, it falls under the category of financial services. Hence, you will need to pay GST for life insurance just as you would for any other good or service you avail.

Prior to the implementation of GST, a service tax of 15% was imposed on the premiums of life insurance policies. Now, as per the new norms, the GST rate that has increased from 15% to 18% is levied on the life insurance premium. The introduction of GST has led to the increase in premium rates of all life insurance products - impacting the end consumer, as they now need to pay relatively higher premiums for life insurance.

That being said, the increase in premium rates has benefited the life insurance market. How? It has paved a way for competitive pricing among insurance companies, enabling them to provide life insurance policies at lower prices and as a result, attract an increasing number of customers.

Life Insurance GST Rates

Different variants of life insurance plans are subject to different GST rates. As of 2022, the GST levied on various types of life insurance products is as follows -

You can find the GST rate you will need to pay for the life insurance plan you are purchasing on the insurance company’s website. The applicable GST rate will be mentioned in the benefit illustration of the life insurance policy you are planning to buy. Some insurers provide you the choice to download the benefit illustration or they will email it to you straight after you create a quote on their website. In case neither of these options are available, you can ask the insurance company for the benefit illustration. Following your purchase, the specifics of the GST you have paid will be mentioned on the premium receipts you get as well.

Important Point To Note

When you are looking to buy life insurance, you should look at the various types available, the benefits, drawbacks, inclusions, exclusions, etc. of each type, and finalise a policy that best matches your needs and fulfills your goals. You should not opt for a policy just because you will have to pay less GST on the policy’s premium.

Wrapping up!

Insurance companies levy GST (Goods and Service Tax) on the premium amount you pay under a life insurance policy. GST is an indirect tax that has replaced many other complicated indirect taxes in India. It is levied on the supply of goods and services.

Since insurance is a service, you are required to pay GST for it just as you would for any other good or service. The GST rate for life insurance policies ranges from 1.8% to 18%. The GST you will need to pay on the life insurance premium amount will depend on the type of life insurance policy you purchase.