With the implementation of GST, life insurance is all set to become a bit costly as the tax rate has been elevated from 15% to 18%. It will also have an adverse impact on the life insurance industry.
“The new GST tax rate proposed is fixed at 18% for life insurance products as against the current 15%. The higher tax rate will have an adverse impact on the life insurance industry and the cost of insurance products at large. With the elevation in the tax rate from 15% to 18%, the cost of buying insurance and keeping the policy active will increase marginally,” says Suresh Agarwal, Chief Distribution Officer, Kotak Life Insurance.
Here’s how GST will impact the premiums of different insurance plans:
# Individual Term Plans / Group Employer –employee / Group Credit Term Policies: Currently, service tax of 15% is imposed on the premium cost of term plans. “With the implementation of GST, the tax will be 18% in the first year and also on renewal premium. It implies that for every Rs 100 paid towards premium which currently attract Rs 15 as service tax will be replaced by Rs 18 as GST under the new tax regime. The premium will get dearer by 3% or 300 basis points,” informs Agarwal.
# Endowment Plans: Endowment plans or traditional insurance savings plans, which currently attract a service tax of 3.75% on the premium in the first year of the policy will rise to 4.5% in the first year under the new tax regime. “As of now, 1.88% service tax is levied on endowment plan’s premium for the second year onwards, which will rise to 2.25% after the implementation of GST,” says Agarwal.
# Unit Linked Plans – Individual and Group Policies: Currently, service tax of 15% is imposed on the charges collected on Unit linked plans. With the implementation of GST, the tax on unit linked charges will be 18%. It implies that for every Rs 100 collected as charges which currently attract Rs 15 as service tax will be replaced by Rs 18 as GST under the new tax regime. The charges will get dearer by 3% or 300 basis points.
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# Commissions and Reinsurance: GST on commission and reinsurance (foreign reinsurers) will continue to be paid by the company under the Reverse Charge mechanism, albeit at a higher tax rate of 18%.
The following services will be exempt from GST:
Services of life insurance business provided under following schemes–
(a) Janashree Bima Yojana (JBY); or
(b) Aam Aadmi Bima Yojana (AABY);
(c) Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having a maximum amount of cover of Rs 50,000;
(d) Varishtha Pension Bima Yojana;
(e) Pradhan Mantri Jeevan Jyoti Bima Yojana;
(f) Pradhan Mantri Jan Dhan Yojana;
(g) Pradhan Mantri Vaya Vandan Yojana; and
(h) Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.”