Does GST Affect Life Insurance Premium In India?

The Goods and Services Tax, better known by its acronym ‘GST’, is a Value Added Tax system applied to goods and services provided for domestic consumption. This system is unique to India and was implemented back on July 1st, 2017. The only goods/services not taxed under GST are alcohol, petroleum products, and electricity. Life insurance, like many other financial products, is also taxable under GST. Your life insurance premiums will generally be slightly higher than the base amount, as additional costs are incurred after adding in the GST value.

Here's a quick run down on the basics of GST and how it applies to life insurance plans.

How GST works

GST is an indirect tax that is paid at every single point of sale. Usually, every consumable good you purchase already has its price marked up by the addition of GST. This tax is also applicable when you purchase a service from a professional or organisation. Life insurance is a financial product and is hence considered a part of the service sector. The life cover you get from your insurance plan is a service that is rendered to you in exchange for the premiums you pay. Due to this reason, you will also have to pay an additional GST cost alongside your regular premium payments.

The amount of GST payable will depend on the GST rate slab that your policy falls under. The tax to be paid is calculated by applying the rate of GST to your regular premium payments.

For example, if you pay ₹1,000 per month and your policy incurs a GST rate of 18%
Your monthly GST amount will be = 18% of 1000 = ₹180

Hence, your total monthly premium will increase to ₹1180.

Tax Slabs for GST on Life Insurance Plans

The GST rate for life insurance can differ based on the type of plan you have purchased. Below is the rate slab for GST applicable to life insurance plans in India.

Is GST Eligible for Tax Benefits?

Yes! The cost added to your premiums due to Goods and Services Tax is also deductible thanks to tax benefits. Under Section 80C of the Income Tax Act of 1961, the premiums you pay for your life insurance plans can be deducted from your total tax liability (up to a limit of ₹1.5 lakhs). This deduction also includes the extra cost your pay due to GST. Moreover, if you have an health riders such as the Critical Illness Rider, you can avail of tax deductions (including GST amount) under Section 80D of the Income Tax Act.

Do NRIs Need to Pay GST on Life Insurance Plans?

NRIs have the option to waive off GST on their life insurance plan. If you’re an NRI, you need to submit your foreign address proof alongside your NRE Bank Statement. The premium amount for your policy must be paid in INR (payment to be made via NRE Account). When you purchase your life insurance plan via a foreign address, it is considered an export product and is hence exempt from GST. Thanks to this provision, NRIs can save up to 18% tax on their term plan premiums!

Conclusion

Life insurance is an essential asset for anyone who wants to secure their family’s financial future. Moreover, life insurance premiums are generally quite affordable, even when you add in the GST rate to premiums! And don’t forget that the GST amount is also eligible for tax benefits. The best course of action is to compare multiple plans and find one that is not only affordable but also provides the protection you need to safeguard your loved ones.