There are only a few suppliers of products or services that are completely GST-free, but one of them is life insurance. That’s a significant savings, especially considering that GST rates have only ever increased.
GST began at a rate of 10.0 percent, was raised to 12.5 percent, and then to 15.0 percent, resulting in a rate that is currently 50 percent more than when it was first implemented. There’s also no guarantee that it won’t be raised again.
Life insurance premiums are exempt from GST under sections 3 and 14 of the Goods and Services Tax Act 1985. Inland Revenue’s Tax Information Bulletin, Volume 13, Number 7, goes into greater detail on this.
Is GST included in insurance premiums?
The premium paid for health insurance is subject to 18 percent GST, according to current legislation. Tax benefits on payments for health insurance policies can be claimed under section 80D of the Income Tax Act.
Explaining with the Help of an Example.
For example, suppose you buy a health insurance policy from any insurance firm, say Bajaj Allianz General Insurance, at the age of 30. The insured value is Rs 10 lakh. The premium to be paid in this scenario is Rs 7,843 plus Rs 1,412 GST (18% GST on basic premium), bringing the total premium to Rs 9,255. If, on the other hand, a person over the age of 50 purchases the same policy, he is required to pay a basic premium of Rs 17,782 and GST of Rs 3,200. The total premium to be paid is Rs 20,983.
Thus, in both of the above circumstances, the amount paid as GST on the basic premiums could be claimed to qualify for the tax saving deduction benefit under section 80D. As a result, we could claim a total premium of Rs 9,255 or Rs 20,983 under section 80D in each of the circumstances described above. The amount of the tax savings deduction is determined by the investment limit set forth in a specific section of the 80D code.
According to Amarpal Chadha, Tax Partner and India Mobility Leader at EY, policyholders understand that GST will be recovered in addition to the premium as contractually specified (in the policy document/renewal intimations, etc.). As a result, without the payment of GST, the policyholder’s obligation will not be discharged, and the policy would be inactive. “As an investor, you should be aware that the tax code is broadly worded to allow a deduction for any monies spent to effect or maintain a contract of insurance on the life of a specific person.” As a result, a portion of the GST paid as part of the premium is deductible, subject to the Section’s overall cap. In addition, the logic for section 80D would be largely the same as it is for section 80C. “The assessee’s obligation would not be discharged unless GST was paid,” he noted.
Life Insurance & Health Insurance
- Endowments (including money-back) are life insurance policies that pay a lump sum or a fixed monthly amount upon maturity or death (sort of like a pension)
Service tax rates vary depending on the type of insurance – for example, ICICI Prudential Life Insurance charges the following service tax rates:
All of these rates will be replaced by 18 percent, resulting in a premium rise. The following is the value of the delivery of services in relation to the life insurance business:
The following is the value of the delivery of services in relation to the life insurance business:
a) The gross premium minus any funds set aside for investment or savings on behalf of the policyholder, if the policyholder is advised of such funds.
c) In all other circumstances, the premium payable is increased by 25% for the first year and 12.5 percent for the second year and onwards.
Impact
Due to the increase in rates, both existing and new policyholders will see an increase in premiums. The rise in taxes will be passed on to consumers through insurers. The increasing quantity of GST returns, as well as the effect of taxability of inter-branch services, are expected to increase compliance and administrative expenses for insurers.
General Insurance
Fire insurance, marine insurance, car insurance, and theft insurance are all examples of general insurance. The GST rate on general insurance would likewise be 18%.
The general insurance premium will increase for policyholders as the tax rate is raised from 15% to 18%. General insurance policyholders can claim an input tax credit on the GST they paid on their policies (it was available to them even under service tax). Life and health insurance policyholders will not be eligible for the input tax credit because it is not available to them (as they are for personal purposes). There will be no input tax credit for business policyholders that provide group life and health insurance to their employees.
- The Insurance Regulatory and Development Authority has approved a life micro-insurance product with a maximum cover of Rs. 50,000.
- On the suggestion of the GSTC, the Government of India may notify any additional state government insurance scheme.
- Members of the Army, Navy, and Air Force are covered by life insurance provided by the federal government.
Can we claim GST on car insurance?
The implementation of the GST Act simplified and harmonized the whole indirect tax structure. However, it has resulted in an increase in the overall car insurance premium when it comes to four-wheeler insurance. The only silver lining is that by filing GST returns, you can claim the GST amount. If you have a GST number, you must add it to your auto insurance coverage in order to file your returns.
Why do we pay GST on LIC premium?
Because GST is effectively a levy for the supply of services under a life insurance policy that replaces the services tax, the computation is based on the following amounts:
- The gross premium minus any funds set aside for investment or savings on the policyholder’s behalf, if such funds are disclosed to the policyholder.
- In all other circumstances, the GST on the premium charged is determined at 25% for the first year and 12.5 percent for the second year and onwards. As a result, when it comes to GST on life insurance premiums, the rate is set at 25% of the first year’s premium and 12.5 percent of the cost in subsequent years. So, if an endowment plan’s premium is Rs 20,000, the 18% GST rate on life insurance premiums will be applied to the 25% of the premium, i.e. Rs 5000 in the first year and Rs 2500 the following year. This does not include single premium or term insurance contracts, which will be detailed later.
- If the entire premium paid by the policyholder is used to cover risk in life insurance, such as term insurance plans, the GST of 18% will be applied to the entire premium. You will be charged GST on the entire premium amount if you choose the Future Generali Flexi Online Term Plan, which is just a protection plan.
In comparison to the previous year, the impact has been a direct and simple increase from 15% to 18%. Because this has been passed on to policyholders, they should be wary of the premiums listed on the policy – whether they include GST or not – and make their decisions accordingly.
Despite the fact that both existing and new policyholders will have to pay the increased cost, the total impact of GST is negligible. As a result, GST should have no effect on the evaluation of various life insurance policies because the key parameters will remain unchanged. The purpose of life insurance remains the same: to provide financial security to nominees and policyholders. Any individual’s basic life insurance needs should be such that, in the event of the individual’s death, the family reliant on them has enough money to sustain their lifestyle and accomplish their financial goals.
How can I know my LIC premium amount?
The first step is to go to the LIC e-Service Portal. You will see two options on the screen: New User and Registered User. Select the appropriate option.
Step 3: Once you’ve logged in to your LIC Services Account, you’ll see a list of options for managing your account or policy. You must now select the ‘Policy Status’ tab.
Step 4: You’ll see a list of all the policies you’ve enrolled in the account. If you have more than one policy and it isn’t on the list, you can add it using the LIC of India’s e-Services Tools section’Enroll Policy’ option.
Step 5: Now all you have to do is click on the policy number in the list to see the specifics of your coverage. The insurance name, policy term, table number, next premium due date, sum assured, and other information will be provided.
Can I claim GST on a private vehicle purchase?
You’re probably already familiar with the logbook technique for claiming business-related expenses like operating costs and depreciation if your company owns motor vehicles (under 1 ton and less than 9 passengers).
The method for calculating the GST you can claim on the purchase of a new vehicle was changed earlier this year, making it mandatory to keep a logbook (or diary) for the first four weeks after the purchase to calculate your business-use percentage for the purpose of calculating the GST you can claim.
There are no additional requirements for people who already keep a logbook because you can utilize your existing logbook. Our recommendation is that enterprises with a motor vehicle keep a logbook for at least 12 weeks, starting from the time the vehicle is purchased. By doing so, you will meet the requirements for calculating both:
By keeping a logbook for at least 12 weeks, you can meet the tax office’s recording requirements for 5 years before having to start the process all over again (if still required and assuming there have been no material changes to your motor vehicle use).
In general, if you match the following criteria, you can claim GST on the purchase of a new vehicle:
- You intend to utilize your acquisition entirely or partially in the course of your business, and it has nothing to do with making input-taxed supply.
- It’s pretty similar to claiming GST on any other company expense when it comes to claiming GST on a car.
- You can only claim GST on the portion of your revenue that is related to your business.
- As a result, you must keep a journal. A logbook keeps track of how many business-related kilometres you travel and how many total kilometres you drive in a certain period of time. Your ‘logbook percentage’ will be calculated as a result of this.
- The percentage of GST and tax deductions for car-related costs that you can claim in your BAS and tax return is determined by your logbook percentage.
- Also keep in mind that if you acquire a car with a GST-inclusive value above the LCT (Luxury Car Tax) threshold, the amount of GST you can claim is limited based on the vehicle’s fuel efficiency.
- If your business is GST-registered on a cash basis, you can claim GST on the new car in the quarter in which you receive (or settle) the vehicle. This is due to the fact that either you or your loan company has ‘paid’ for the car on that particular date. Alternatively, you may have paid for the car in full using funds from your bank account.
- The initial few instalments due to your finance business can be funded with the GST claim you made up front.
What is the difference between PLI and LIC?
When it comes to premiums, LIC has a higher premium rate than PLI. Many PLI policies include a sizable bonus. Bonuses are available in many LIC plans. However, when compared to PLI plans, the bonus rate is low.
Is LIC maturity amount taxable?
Section 10(10d) of the Income Tax Act exempts the maturity proceeds of a life insurance policy if the premium paid in respect of the life insurance policy does not exceed 10% of the sum assured for any year throughout the premium payment term for policies issued after April 1, 2012. The premium cap is 20% of the total insured for plans issued between April 1, 2003 and March 31, 2012. There were no restrictions on the amount of premium for plans issued before April 1, 2003. Regardless of the amount of the premium paid, any amount received as a death claim is completely tax-free.
Is LIC policy worth buying?
Term insurance, which is a pure risk cover, is the best way to take care of insurance. According to the rule of thumb, you need insurance coverage equal to at least 10 times your yearly salary, and term insurance is the only method to achieve that coverage. You can get a Rs 1 crore term insurance policy for as little as Rs 15,000 or even less. An endowment plan with a cover of one crore rupees would be prohibitively expensive.
What about the financial commitment? The justification for endowment plans is that they pay a dividend when they mature, whereas term plans do not.