Now a days, when we buy insurance policies we always compare the period covered with the premium. However, there are another costs which may influence your decision making like mortality and even you need to pay Goods and Service Tax (GST) on the same. Our today’s article is on GST on insurance like Life Insurance, General Insurance including Car Insurance, fire insurance, marine insurance, etc.
Before implementation of Goods and Service Tax (GST), service tax was charged at the rate of 15% on most of the Insurance plans, whereas now GST is charged at the rate of 18% on majority of insurance plans. Hence, there has been hike in the tax on Insurance services.
Life Insurance Policy
GST on different types of life insurance Policy-:
- Term Insurance : Basic life insurance policies, covering insurance only. For instance, GST on insurance policy will be charged as follows,
| Particular | Amount in Rs. |
| Amount of premium charged | 1,000 |
| GST on Rs. 1,000 @ 18 % | 180 |
- Single premium (like annuity) : 10 % of single premium charged from policy holder.
| Particular | Amount in Rs. |
| Single premium charged | 10,000 |
| Value of supply | 1,000 |
| GST on Rs. 1,000 @ 18% | 180 |
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- Unit Linked Insurance Plan (ULIP) – This type of policy offers insurance and investment as well. The gross premium charged reduced by sum allocated for investment on behalf of policy holder, if it was intimated to the policy holder at the time of supply. For instance,
| Particular | Amount in Rs. |
| Gross premium per annum | 1,000 |
| Sum allocated as investment intimated to policyholder | 400 |
| Insurance portion | 600 |
| Value of Supply | 600 |
| GST on Rs. 600 @ 18 % | 108 |
- Endowments policy: This Policy provides combined benefit of insurance and savings. GST is charged on 25% of premium charged in the first year and 12.5% of premium charged in subsequent years
| Particular | Amount in Rs. |
| Premium for first year | 1,000 |
| Value of supply | 250 |
| GST for first year on Rs. 250@ 18% | 45 |
| Premium for second year | 1,000 |
| Value of supply | 125 |
| GST on Rs. 125 @18% | 22.50 |
GST Payment and Input Tax Credit Calculator
General Insurance
General Insurance includes Health Insurance, Travel Insurance, Car Insurance, Marine Insurance, Home Insurance, fire insurance, etc. GST on General insurance is charged @18% of premium value.
For instance,
| Particular | Amount in Rs. |
| Car Insurance Premium paid | 10,000 |
| GST Rate | 18% |
| GST Amount | 1,800 |
| Total Premium | 11,800 |
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GST Input Tax Credit (ITC) on Insurance
As a normal practice, whenever we pay GST, we tend to check whether such expense is eligible for ITC or not?
Life Insurance
Life Insurance or health insurance is for the personal purpose of an individual. This expenditure is not for the business, therefore, one cannot claim credit of the same. Also, as per section 17(5), GST on life insurance and health insurance is blocked.
Nevertheless, Expenses relating to rent-a-cab facilities, life or health insurance can be claimed as input tax credit (ITC) only-
- where the Government has notified it as services which are obligatory for an employer to provide to its employees under law like Workman Compensation Act, etc, or
- where goods and/or services are used by a registered person for making outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply
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General Insurance
GST paid on general insurance is available, if expense is for the business purpose. So, GST on insurance premium paid for factory building, motor vehicle, fire insurance etc will be eligible for Input Tax Credit (ITC).
However, the ITC on the motor vehicles will only be allowed when used
- for further supply of vehicles, or
- for training purpose, or
- transportation of passengers, or
- for transportation of goods.
Hence, if vehicle is used for any other purpose ITC will be disallowed.
14 Blocked Input Tax Credit (ITC) under GST
Exemption from GST on Insurance schemes
There are following insurance schemes, on which GST is exempted. Life insurance provided by Government schemes are exempted from GST under:
- Janashree Bima Yojana (JBY)
- Aam Aadmi Bima Yojana (AABY)
- Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum cover of Rs. 50,000
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Pradhan Mantri Jan Dhan Yogana
- Varishtha Pension Bima Yojana
- Pradhan Mantri Vaya Vandan Yojana
- Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.
- Life insurance provided by Central Government to members of the Army, Navy and Air Force.
For any questions, you may reach us at Discussion Forum
The author of the above article is CA Ankita Gandhi.
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