Tax saving: Does GST on insurance premium qualify for tax benefit u/s 80C, 80D?

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Updated: March 5, 2019 2:58:58 PM

Sometimes, the insurance premium receipt does not show the GST amount separately or the employer disallows the GST amount for the tax benefit.

GST on insurance premium, life insurance GST rate, gst rate on insurance premium, Tax savings, Section 80D , Section 80C, insurance premium, GST, insurance,The insurance premium paid also includes the GST amount and at times some employers do not accept the full amount and provide tax benefit only for the premium amount excluding the taxes.

The tax saving season has entered its last month for the financial year 2018-19. Many of you would have submitted the original investment proofs to your employer to avoid deduction of higher taxes from the last month’s salary.

Amongst the investment proofs are the insurance premium receipts collected from either life or health insurance companies. The insurance premium paid also includes the GST amount and at times some employers do not accept the full amount and provide tax benefit only for the premium amount excluding the taxes.

GST on insurance premium

In case of life insurance GST rate, for all life insurance policies excluding single premium and term insurance policies, 25 per cent of the premium of the first year and 12.5 per cent of the premium in subsequent years is considered for tax calculation. So, if the premium of an endowment plan is Rs 10000, the GST rate on insurance premium of 18 per cent will be applicable on the 25 per cent of the premium i.e. on Rs 2500, so, Rs 450 will be the GST amount.

However, if the entire premium paid by the policyholder is towards the risk cover in life insurance such as in term insurance plans, the GST of 18 per cent will be calculated on the entire premium. Similarly, in the case of health insurance policy, the calculation of GST is on the entire premium amount.

Will GST be allowed for tax benefit

The concern that most taxpayers have is whether the total amount paid towards insurance ( health or life insurance) including the GST, qualifies for tax benefit under section 80C and 80D respectively. “Yes, the total amount paid towards health and life insurance (including the GST paid on such insurance premium) qualifies for deduction under Section 80D and Section 80C respectively. This is due to the fact the income tax legislation mentions that ‘any amount paid’ for the insurance premium for life as well as medical are eligible for deduction under the respective section,” informs Taranpreet Singh, TASS Advisors Partner.

What if employer disallows

Sometimes, the premium receipt does not show the GST amount separately. “In such cases, the employee can obtain an annual statement of policy premium from the insurance company and can provide it to the employer,” says Dr Suresh Surana, Founder of RSM Astute.

Also, if the employer disallows the GST amount for the tax benefit, even then, the taxpayer can take benefit for it. “ In case an employer disallows the GST amount paid on insurance premium if the same is not reflecting the receipts, the employee may claim the deduction of the same GST amount while filing the Income Tax Return,” says Singh.

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