GST on Life Insurance Premiums – Changes from 1-7-2017

Goods & Services Tax – GST  on Life Insurance Premiums – Changes from 1-7-2017 – All details with examples and illustrations.

After a long period of deliberations and uncertainty, finally Goods & Services Tax – GST has become a reality in India, with effect from 1 st July 2017. Proposed changes on tax structure, owing to the implementation of GST is bound to restructure the economy of India. The debate on how the restructuring is going to affect common people is still going on and the final picture on the repercussions are to be wait and seen.

Mean while, the Insurance sector, along with other financial sectors, will see a sea of change. Let us have a closer look on the proposed GST changes and how it will affect the policy holders.

GST on Life Insurance Premiums – Proposed changes
  • Currently Insurance companies are charging Service Tax on the insurance premium at varying rates depending on the policies and the insurance element in it. The name Service tax itself will be replaced by GST in premium receipts and other documents hereafter.
  • All the Cess on premiums like Swatch Bharat Cess (SBC), Krishi Kalyan Cess (KKC) etc. which were collected along with the service tax on Insurance premium will be diluted and dismantled in GST.

Read more: No more Service Tax exemption to NRI’s and FNOI’s – GST Impact – Important news

GST on Life Insurance Premiums – Change in Tax Rates.
Tax Rate Change Under GST
Plans Old Service Tax Rates GST Rates from 1.7.2017 Change
Term Insurance Plans 15 % (Including SBC 0.5% +KKC 0.5%) 18 % + 3%
Health Insurance Plans 15 % (Including SBC 0.5% +KKC 0.5%) 18 % + 3%
ULIP (Unit Linked Insurance Plans) 15 % (Including SBC 0.5% +KKC 0.5%) 18 % + 3%
Conventional Policies (Life and Pension)
(Including Single Premium – life)-FIRST YEAR
3.75 % (Including SBC 0.125% +KKC 0.125%) 4.5% + 0.75%
Conventional Policies (Life and Pension)
-SECOND YEAR
1.875 % (Including SBC 0.0625% +KKC 0.0625%) 2.25 % + 0.375%
Single Premium Annuity Products 1.5 % (SBC 0.05% + KKC 0.05%) 1.8 % + 0.3%
GST rates on interest charged on delayed insurance premiums.

Changes in the tax rates will be naturally become applicable on the the delayed premiums when paid as a lump sum at the time of reviving the policy. Now under GST, tax will be charged at applicable rates on the interest portion paid along with the revival amount. Rate of interest charged will be according to the premium collected.

GST rates applicable on Cheque Dishonour charges

GST will be applicable on CDA Charges at the rate of 18%. Tax shall be charged on all expenses including postal charges incurred.

Premium Calculator for all LIC Policies with New Service tax (GST) rates

You can calculate the revised premium with new service tax rates applicable from 1-7-2017 from the premium calculators provided at InsuranceFunda. Click the link given below to open premium calculators.

Premium calculator with new service tax GST rates GST on Life Insurance Premiums – Changes from 1-7-2017

Service Tax (GST) exemptions – Insurance Sector as decided by GST Council
  • Services of life insurance business provided by way of annuity under NPS regulated by PFRDA
  • Services provided by IRDA to insurers under IRDAI
  • Serviced of life insurance business provided under following schemes
  1. Jana Shree Bima Yojana (JBY)
  2. Aam Aadmi Bima Yojana (AABY)
  3. Micro Insurance upto Rs. 50,000
  4. Varishta Pension Bima Yojana
  5. Pradhan Manthri Jeevan Jyothy Bima Yojana
  6. Pradhan Manthri Jan Dhan Yojana
  7. Pradhan Manthri Vaya Vandana Yojana

Read more : No more Service Tax exemption to NRI’s and FNOI’s – GST Impact – Important news

GST on Life Insurance Premiums – Example of changes – Illustration

Let us consider a hypothetical person having age 30 years taking the popular Jeevan Anand policy (Table 815) for 10 lakh sum assured. Let the term of the plan be 25 years. Let us analyse the change in premium liability for the aforementioned policy.

Year Basic Premium Premium with
Service Tax up to
1.7.2017
Premium with
GST on or after
1.7.2017
First Year Premium 43815 45458 45786
Second Year Premium 43815 44637 44800

Note # Service Tax and GST will become applicable only on policies started on or after 1/01/2014.  And hence all policies commenced before 1st January 2014 are naturally exempted from service tax.

Anish L J
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Anish L J

Anish L J is a finance, insurance and software consultant with more than 18 years of experience in these fields. He thoroughly follows developments in insurance and finance. 'INSURANCE FUNDA' (www.insurancefunda.in) is his endeavour to provide simple and solid solutions in the Insurance and Finance sectors.
Anish L J
Follow me

Anish L J

Anish L J is a finance, insurance and software consultant with more than 18 years of experience in these fields. He thoroughly follows developments in insurance and finance. ‘INSURANCE FUNDA’ (www.insurancefunda.in) is his endeavour to provide simple and solid solutions in the Insurance and Finance sectors.

2 thoughts on “GST on Life Insurance Premiums – Changes from 1-7-2017

  • August 19, 2017 at 5:30 am
    Permalink

    Hi Anish,
    Great post!!!
    Need a minor clarification. About the section on GST exemption for a few plans, can you please point out to the relevant notification where such exemptions are mentioned. As I see, these are not part of GST Act (or is i?)
    I have read about such exemptions but have not been able to find confirming documents.
    Will really appreciate.

    Reply
    • August 19, 2017 at 3:07 pm
      Permalink

      Hi Deepesh,
      Thank you for your comment. Regarding your query LIC’s circular dated 28/6/2017 clearly states about the exempted schemes. You can view the circular here.

      Reply

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