In today’s unpredictable times, insurance has become a necessary buffer. It can provide financial security during uncertain and difficult times. However, insurance policies are not exempt from taxation, and if you purchase any, you will have to pay Goods and Service Tax (GST). This article will help you understand the impact of GST on the insurance sector.What is the impact of GST on insurance?
As per new norms, GST rates have seen an increase from 15% to 18%, premium paid on insurance policies will increase. This article will focus on the impact of GST on insurance premiums and other aspects of life and general insurance plans.
- GST on life insurance
Before tackling the impact of GST, you need to know the three commonly purchased types of life insurance plans available. They are:
– Term insurance plans: These are standard life insurance plans.
– Unit linked insurance plans/ULIPs: These plans provide insurance and investment/savings plans in one package.
– Endowment plans: Such polices provide either a lump–sum payout upon maturity or death of the policyholder or a fixed monthly sum like a pension.
As of 2022, all of these plans will be taxed in the following manner:
– Term insurance plans will be charged at 18% GST, which will lead to an increase in life insurance premiums.
– Similarly, ULIPs will also be charged at 18%, covering costs of premium and fund management.
– For endowment plans, GST will be applied at 4.5% for first–year premiums and 2.25% for later years.
- GST on General Insurance
General insurance includes coverage plans such as health insurance, personal accident insurance, home insurance, car and bike insurance, theft insurance, and travel insurance, among others. As of 2022, the GST applicable on general insurance policies will also be 18%. With this change, policyholders will have to pay increased taxes. Corporate policyholders may still enjoy input tax credit. However, this benefit is not available for life and health insurance policies.
If you want to save on income tax and combat the increased GST on insurance premiums, you can rely on the various deductions available in India. With these deductions, you can enjoy tax benefits on the premiums payable along with the GST levied. Sections 80C and 80D of the Income Tax Act of India, 1961, allow you to avail of deductions that can help you save on paying taxes applicable on insurance.
With Section 80C, you can avail of deductions up to Rs 1,50,000 on insurance policies and other investments. In addition, you can claim deductions up to Rs 25,000 on premiums paid on insurance policies under Section 80D. You can also opt for GST–exempt life insurance provided by various government schemes.
Now that you know more about the impact of GST on insurance policies, you can make sure that you choose the right plan and pay your taxes as per the law. Do also remember to evaluate the insurance coverage you have regularly so that you can stay protected against the uncertainties of life.Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.