Understanding How GST Affects Your Health and Life Insurance Policies

By: Admin
Date: August 12, 2024
Category: GST News
Read Time: 4 Min

The Goods and Services Tax (GST), introduced in 2017, reshaped India’s tax system by merging various indirect taxes into a single framework. One significant change was the GST on life and health insurance policies, replacing the former 15% service tax rate.

The debate over GST on insurance premiums intensified when Transport Minister Nitin Gadkari urged Finance Minister Nirmala Sitharaman to reconsider the high GST rates. He argued that these rates impose extra financial burdens on life and health risks and stifle sector growth. Gadkari, responding to concerns from the Nagpur Divisional Life Insurance Corporation Employees Union, highlighted the need to remove GST on premiums, particularly for senior citizens.

In response, Sitharaman clarified on August 7 that taxes on insurance premiums existed before GST. She noted that this issue was not adequately addressed at the state level. Despite ongoing discussions, understanding the current GST rates on health and life insurance policies is essential for making informed decisions.

How GST is Applied:

  • Health Insurance: 18% GST on total premiums.
  • Term Insurance: 18% GST on the full premium, including riders like critical illness.
  • Traditional Life Insurance Plans: 4.5% GST in the first year; 2.25% in subsequent years.
  • Unit Linked Insurance Plans (ULIPs): 18% GST on mortality and other charges.

GST paid on these policies is eligible for deductions under Sections 80C and 80D of the Income Tax Act. This can help maximize your tax benefits.

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