Goods and Services Tax on Insurance Products

Like most financial services, insurance premiums are also subject to goods and services tax in India. Typically, GST is levied at a standard rate of 18% on insurance premiums, which adds to the overall cost borne by policyholders.

In the 54th GST Council meeting, the GST Council discussed changes in GST rates on insurance products. A reduction from 18% to 5% on health insurance premiums for senior citizens was recommended. The council also suggested that GST should be exempt on insurance premiums paid for term life insurance policies and senior citizens’ health insurance. However, these recommendations are still under discussion.  

In this guide, we’ll cover the present rates, explain what GST is, the different types of GST and how it applies to other insurance products.

What is the Goods and Services Tax?

Goods and services tax is a destination-based tax at a single point at the time of consumer consumption of goods or services. It is an integrated tax, and most of the earlier indirect taxes, such as service tax, VAT, etc., have been subsumed into a single system of taxation. GST works on the concept of ‘one nation, one tax’ and will give a single common national market.

GST on Life Insurance

There are three types of life insurance

1. Term insurance: Based on basic life insurance policies

2. ULIP: insurance and investment under a single integrated plan

3. Endowments: life insurance policies that pay a lump sum on maturity or a fixed sum every month

 GST on Health Insurance

• The current GST rate on health insurance premiums is 18%.

• Critical illness and top-up health insurance also attract 18% GST.

This means that if a person pays ₹10,000 as an annual health insurance premium, an additional ₹1800, that is 18%, is added as GST, making the total cost ₹ 11,800. 

GST on General Insurance

General insurance includes marine insurance, fire insurance, car insurance, etc.

For policyholders, general insurance premiums rose as tax increased from 15% service tax to 18% GST. Corporate policyholders who have taken general insurance benefit from input tax credit on GST paid on their policy. However, people who are healthy and life insured will not have input tax credit as it is not available for life and health insurance.

GST rates on various general insurances:

There are certain life insurance policies provided by government schemes that are exempt from GST. These are:

1. Janashree Bima Yojna (JBY)

2. Aam Admi Bima Yojna (AABY)

3. Pradhan Mantri Jan Dhan Yojna 

4. Pradhan Mantri Vaya Vandan Yojna

5. Varishtha Pension Bima Yojna

6. Life insurance for the Central Government provided to members of the Army, Air Force and Navy is also exempt from GST.

How does GST differ for Life Insurance and General Insurance?

There are key differences in how GST is applied to life insurance and general insurance. These are: 

Summing Up

All insurance products come with certain GST rates that directly impact their affordability.  With the 18% GST rates making insurance expensive, discussions on lowering it for senior citizens’ health insurance are a step in the right direction. Understanding how GST applies to different insurance types can help you make informed decisions when purchasing any policy.

With Canara HSBC Life Insurance, you can choose from a variety of insurance plans that suit your needs. Knowing about term insurance, ULIPs or health coverage GST implications allows you to plan your finances better.