In 1956, all life insurance companies were nationalized to form LIC to incr...
On June 30, after the ceremonious rollout of GST in Parliament’s central hall by PM Narendra Modi, here’s a look at its effects on the multi-billion dollar Indian insurance industry.
Customers will now have to pay a small increase in their insurance premiums; however contrary to popular belief, not all insurance policies will be taxed at 18% from the current 15%. The increase in tax rates will vary for different insurance products and will impact policies of all private as well as public sector insurance companies, including LIC of India.
There will be a 3% rise in the tax rate on term insurance plans, health insurance plans, critical insurance plans, unit-linked insurance plans (ULIPS), motor insurance plans and personal insurance plans, up from 15% to 18%. All insurance companies in India have already started reaching out to existing policyholders via SMS, Emails and other modes of communication, intimating them of the change in their premium rates. These changes will affect both existing as well as new insurance policies.
The applicable tax rate on annuity plans would be a marginal 1.8% instead of the current 1.5%. For single premium policy or endowment insurance plan, GST for first year premium amount has been increased from 3.75% to 4.5%. Subsequently, for renewal premiums, it will be halved of the first year rate, which is 2.25%.
|GST IMPACT ON INSURANCE|
|Insurance Product||Tax applicable on||Old Service Tax Rate||Effective GST Rate||Increase of|
|Term Plans, Health Plans, Riders||Premium amount||15%||18%||3%|
|Car, Bike Insurance||Premium amount||15%||18%||3%|
|Endowment Plans||1st year/ Single premium||3.75%||4.50%||0.75%|
|Endowment Plans||Renewal premiums||1.88%||2.25%||0.38%|
|Single Premium Annuity Plans||Premium amount||1.50%||1.80%||0.30%|
Corporate policyholders, who have taken general insurance, can enjoy input tax credit on the GST paid on their insurance policies. However, corporate policyholders with group life and group health insurance for their employees will not be able to enjoy any input tax credit. Similarly, life and health insurance policyholders will not have input tax credit as these are for personal use.
There are some exemptions. For instance, life insurance provided by Indian Government under these schemes are exempted from GST - Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Vaya Vandan Yojana, Janashree Bima Yojana (JBY), Aam Aadmi Bima Yojana (AABY), life micro-insurance product as approved by the Insurance Regulatory and Development Authority of India (IRDAI) having maximum cover of Rs.50,000 and Varishtha Pension Bima Yojana.
For new customers considering buying an insurance policy, nothing changes in the comparison or selection process, as GST impacts all policies across all insurance companies.