GST on Life Insurance: A Comprehensive Guide

Buying a life insurance plan is a great way to take care of unforeseen events. The main purpose of life insurance is to provide the much-needed financial stability to the policyholder during difficult situations that life brings.

But do you know that GST (Goods and Services Tax) is charged on the premium payment you make for your life insurance plan? Are you aware of the rates and impact of this tax?

This guide will clear all your doubts about insurance and GST, helping you navigate the complex world of taxation. So, let us get started.

What is GST for Life Insurance Premium?

Many taxpayers purchase life insurance to utilise life insurance tax benefits. However, only a few of them know that the premium paid by them includes GST.

GST, an abbreviation for Goods and Services Tax, is an indirect tax charged on various goods and services. As life insurance is a service, GST is also imposed on life insurance premiums as well.

The GST rate on premiums of life insurance plans is 18%. However, it is not a fixed rate and varies from plan to plan.

Here is a brief explanation of insurance GST rates that are imposed on premiums of different life insurance plans.

Effects of GST on Life Insurance Premiums

• Ease in Understanding Taxation System

  The consolidation of multiple taxes into a single and simplified tax has made it easier for policy buyers to adhere to the tax laws. The single tax system helps avoid confusion among taxpayers allowing them to understand the taxes they are obliged to pay.

• Improved Tax Compliance

  The introduction of GST rates on insurance premiums has given birth to robust reforms for tax collection. As a result, cases of tax evasion and other tax-related fraudulent transactions have been reduced. This has resulted in increased compliance in the daily activities of insurance companies.

• Change in Premiums

  The change in tax rate imposed on the premium has impacted the policy buyers in many ways.
  While the increased GST on insurance premiums for term insurance plans and ULIPs has led to a hike in premiums, the reduced rate of GST for endowment plans and single premium annuity policies has provided relief to the policyholders by lowering the total premium amount.

How to Reduce Your Taxable Income as a Salaried Employee?

Individuals whose main source of income is salary often find their earnings getting exhausted by taxes. This highlights the importance of tax planning for salaried employees.

Multiple tax-saving options are available to lower your taxable income. A life insurance policy offers twofold benefits to policyholders: It provides financial protection and helps you legally save on taxes.

Under Section 80C of the Income Tax Act, 1961, you can claim a tax deduction of up to ₹1,50,000 on the life insurance premiums paid in a year. This way, you can easily reduce your tax liability and build wealth for yourself and your loved ones.

Coming to an End

Understanding the structure of GST on insurance premiums is important as it promotes tax planning and helps you make informed decisions about your investments.

While the implementation of GST on insurance has affected the premiums, it is important to note that these effects can be curbed by claiming tax deductions on life insurance premiums you have paid in a year.

PNB MetLife offers life insurance plans to help you build a financially secure future for your family. You can choose from our wide range of products that satisfy the needs of all types of investors.

For example, if you are looking for a plan that offers guaranteed returns, you can opt for our Guaranteed Future Plan which offers higher premium rewards and guaranteed additions and benefits at an affordable rate.