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When GST was implemented back in 2017, it was all anybody could talk about. It was a game-changing tax that had various impacts - good and bad - on various industries. GST on life insurance ended up increasing the premium on different types of life insurance policies. This article will help you see what exactly that means for you as a life insurance buyer and elaborate on everything that’s important for you to know.
Is life insurance premium taxed*?
Yes, the premium paid by a policyholder for a life insurance policy is taxed in India. The important thing to note is that the tax paid on the life insurance premium should not be confused with the income tax deductions for the premium paid.
India has two types of taxation systems - direct taxes and indirect taxes. Income tax is a direct tax that you pay on the income you earn. This income includes your salary income, professional income, rental income, etc. When you file your taxes every financial year, you do so for income tax.
The benefits of tax deductions you receive for life insurance policies are under Section 80C and Section 80D of the Income Tax Act, 1961. You can avail of deductions up to ₹ 1.5 Lakh on all the insurance premiums you’ve paid in the year.
However, when buying an insurance policy and paying its premiums, GST on life insurance premiums applies.
What is GST?
GST, the Goods and Services Tax, is a type of indirect tax that replaced a host of indirect taxes that existed in India, such as VAT, service tax, excise duty, etc. It’s called a destination-based tax, which means it is levied when you buy or consume a product or service.
Insurance is a service. It falls under the category of financial services. Hence, before GST was implemented, service tax was levied on the premium paid on life insurance policies. Now, instead of service tax, GST is levied on the life insurance premium.
Life insurance plans are typically subdivided into term insurance, ULIPs, and endowment plans. It’s important to note that GST is applicable differently on these categories of life insurance policies.
How does the impact of GST differ for different policies?
Term insurance plans
A term policy is one of the most economical and preferred types of life insurance plans. It is a pure-protection plan because it only has a death benefit and not a maturity benefit. In case of the policyholder’s demise during the term of the term policy, the nominees will receive the sum assured. For term insurance, there is a standard 18% GST applicable on the premium payments.
Endowment plans
An endowment plan is a type of life insurance where there is both a death and a maturity benefit. This means the sum assured is paid in a lump sum either on the maturity of the insurance plan or in case of the policyholder’s demise. For endowment plans, the GST applicable is slightly different. For the first-year premium, there is a 4.50% life insurance GST rate. For the following years, there is a 2.25% GST rate applicable.
Unit-Linked Insurance Plans (ULIPs)
ULIPs are a little different from traditional life insurance products. They offer a policyholder an opportunity to grow their money through insurance. ULIPs are part insurance and part investment products. For ULIPs, too, the GST levied on the premium is 18%. The best part is that this GST rate covers both the fund management charges and the premium payments.
What is the comparison of GST rates before and after?
Here’s a snapshot of the life insurance GST rates on different types of policies before and after.
Life insurance product |
After |
Term insurance & ULIP |
18% |
Endowment plan (first year) |
4.50% |
Endowment plan (subsequent years) |
2.25% |
Single premium annuity plans |
1.8% |
Can I claim a deduction against GST on life insurance premium?
Yes, you can claim a deduction against GST on the life insurance premium paid by you. This is possible only if the total amount of premium deduction you claim, including the GST applicable on it, falls within the overall limit of ₹ 1.5 Lakh as per Section 80C.
Is there a silver lining to the GST impact on life insurance?
While the primary impact of GST on life insurance policy was a raise in the premium amount, there is also a silver lining. Policyholders have stopped looking at life insurance as a mere tax-saving tool and have started to focus on the primary purpose of insurance - financial protection.
Another positive impact of the implication of GST is that some life insurance providers have decided to design policies in a manner that offers better deals to their customers. Tata AIA Life Insurance offers term insurance plans with a host of benefits. These include discounted premiums, coverage up to 100 years, a claim settlement ratio of 99.06% (FY 19-20) and more.
Tata AIA Life Insurance’s Term Insurance Plan also comes with an in-built payout accelerator benefit, which offers 50% of the sum assured if a policyholder is diagnosed with a terminal illness. There is also a range of other useful riders#, such as accidental death and disability, which can help make your term insurance plan more comprehensive. This will ensure that your loved ones are financially secure even after you’re gone.
L&C/Advt/2021/Jun/1020
