GST Impact on Insurance: With a hike in GST rates to 18% from the earlier 15%, insurance sector products and services have become more expensive now. The impact of GST on insurance, for instance, will increase the premiums, especially for families that pay for health, life and car insurance. These changes have come into effect after President Pranab Mukherjee and Pime Minister Narendra Modi launched the goods and services tax (GST) in a spectacular midnight ceremony held at Parliament’s iconic Central Hall on the intervening nght of June 30 and July 1 in the presence of a number of diginitaries except teh Opposition. GST has been dubbed as the single largest tax reform in India after Independence in 1947.
GST impact on Insurance – Life Insurance & Health Insurance
There are 3 types of life insurance:
Term insurance plans – basic life insurance policies
ULIPs – insurance and investment under a single integrated plan
Endowments (including money-back)- life insurance policies that pay a lump sum on maturity/death or a fixed sum every month (like pension)
The applicable service tax on each type of insurance plans was different:
For example, ICICI Prudential Life Insurance used to apply service tax at the following rates:
|Category||Service Tax With SBC And KKC||After GST|
|Term insurance premium||15.00%||18.00%|
|Health insurance premium||15.00%||18.00%|
All these rates will be replaced by 18%, which will result in increase in premiums.
The value of supply of services in relation to life insurance business shall be:
a) The gross premium minus the amount allocated for investment, or savings on behalf of the policyholder, if such amount is informed to the policyholder.
|Particulars||Under Service Tax||Under GST|
|Life Insurance portion||400||400|
|Service tax @ 15% on 400||60||—–|
|GST @18% on 400||—–||72|
b) Single premium annuity policies- 10% of the premium
c) All other cases- 25% for 1st year and 12.5% for 2nd year onwards on the premium charged.
|Gross Premium p.a.||1000|
|25% of value||250|
|GST @18% on 250||62.5|
|12.5% of value||125|
|GST @18% on 125||22.5|
d) If the entire premium is for life insurance, GST @18% will apply on the entire premium
Both existing and new policyholders will face an increase in the premium amounts due to increase in rates.
For insurers, the increase in taxes will be passed on to the consumers. The insurers expect higher compliance and administrative costs due to the increased number of GST returns and also effect of taxability of inter-branch services.
General insurance includes fire insurance, marine insurance, car insurance, theft insurance etc. The GST rate will also be 18% on general insurance.
For policyholders, the general insurance premium will rise as tax has increased from 15 to 18%.
Corporate policyholders, who have taken general insurance, can enjoy input tax credit on the GST paid on their policies (it was available to them even under service tax).
Life and health insurers will not have input tax credit as it is not available for life and health insurances (as they are for personal purposes). Even corporate policyholders with group life and health insurance for their employees will not enjoy any input tax credit.
Life insurance provided by Government schemes are exempted from GST:
Janashree Bima Yojana (JBY)
Aam Aadmi Bima Yojana (AABY)
Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum cover of Rs. 50,000
Varishtha Pension BimaYojana
Pradhan Mantri Jeevan Jyoti Bima Yojana
Pradhan Mantri Jan Dhan Yogana
Pradhan Mantri Vaya Vandan Yojana
Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.
Life insurance provided by the Central Government to members of the Army, Navy and Air Force.
All policyholders will have to pay higher premiums on their insurance policies due to increase in GST rates. An average family with life, health and car insurance will find an increase of 3% in their insurance expenses. Assuming they spend a total of Rs 30,000 a year on insurance, excluding service tax, their expenses will increase by 3% i.e., Rs. 900.
(The author is Founder & CEO, ClearTax.in)