The provision under Sections 80C and 80D of the Income-tax Act is that specified taxpayers could claim deductions to the Insurance company on the total amount paid to them for specified insurance schemes.
A person paying a premium against the life and medical insurance policies could readily use them to claim tax benefits as mentioned in Section 80C and Section 80D of the Income Tax Act.
But the question arises whether a taxpayer could claim for a similar nature of Tax benefit on the GST which he pays on the insurance premiums?
In General, the net amount paid by the taxpayer while buying the life or medical insurance policy includes GST paid on the premium. GST is fixed for any insurance bases being calculated as a percentage of the premium. The tax amount paid under GST could at a time be a substantial amount. So this should be a matter of concern and curiosity to know how much GST is applicable on life and non-life insurance premiums and also whether the GST paid with the basic insurance premium is eligible for availing tax benefits.
Rajat Mohan, Partner, AMRG & Associates says, “Section 80C and Section 80D of the Income-tax Act entitles specified taxpayers to claim the deduction for the entire amount paid to the insurance company for specified insurance schemes. GST being an indirect tax is charged/recovered by the supplier of services from the recipient with an actual value of service. Thereby, a collective reading of income tax and GST laws would echo that the entire amount paid to the insurance company including applicable GST would be allowed as a deduction.”
GST Paid on Health Insurance
As per the prevailing regulations, 18% of GST is charged on the premium which is paid for health insurance. Under section 80D of the Income Tax Act, Tax benefits could be claimed on the payment made for health insurance policies.
Explaining with the Help of an Example.
Say for instance, If one purchase a health insurance policy at the age of 30 years and the insured amount is Rs 10 lakh from any insurance company say Bajaj Allianz General Insurance company. The premium which is supposed to be paid in this case would be Rs 7,843 and GST of Rs 1,412 (18 per cent GST is applied on basic premium) where the overall premium will add up to Rs 9,255. In the other case, if the same policy is purchased by a person having attained the age of 50, then he is supposed to pay a basic premium of Rs 17,782 and GST of Rs 3,200. The overall premium payable amounts to Rs 20,983.
Thus in both the above cases, the amount which has been charged as GST applicable to the basic premiums, could be claimed for availing tax saving deduction benefit under section 80D. Thus in both the cases mentioned above we could claim a total premium of Rs 9,255 or Rs 20,983 as per section 80D. The tax saving deduction amount depends on the investment limit mentioned under a particular section in 80D
Amarpal Chadha, Tax Partner and India Mobility Leader, EY, says that the policyholder understands that it is contractually provided (in the policy document/renewal intimations etc.) that GST would be recovered in addition to the premium. Accordingly, without the payment of GST, the obligation of the policyholder would not be discharged, i.e., the policy will not be active. “As an investor, you should know that the income-tax law is widely worded so as to provide a deduction for any sums paid to effect or to keep in force a contract of insurance on the life of a specified person. Accordingly, a component of GST as an element of the premium is eligible for deduction subject to an overall cap of the Section. Also, principally the logic for section 80D would remain the same as for section 80C. Without the payment of GST, the obligation of the assessee would not be discharged,” he added.
| Type of product | GST applied on | GST applied (%) | Total premium* can be claimed for a tax benefit (under section) |
|---|---|---|---|
| Health Insurance | Basic insurance premium | 18 | 80D |
| Term Insurance | Basic insurance premium | 18 | 80C |
| ULIPs | Charges like Fund Management Charges and Mortality Charges | 18 | 80C |
| Traditional plans like endowment policy, money back policy, whole-life policies and pension products | First-year insurance premium
Second-year insurance premium |
4.5
2.25 |
80C |
GST Paid on Life Insurance
Vinay Taluja, National Head – Solutions, Bajaj Capital said that GST varies depending upon the product you have purchased. For say, term insurance has 18 per cent GST on the basic premium and traditional endowment insurance has 4.5 per cent GST for the first year and from the second year, it is 2.25 per cent. For the regular premium of unit-linked insurance plans (Ulips), a GST of 18 per cent is levied on several kinds of charges but not applied to the whole premium. “Furthermore, if you take any riders on health insurance, you have to pay 18 per cent GST,” he added.
Read Also: Goods and Services Tax Impact on the Insurance Industry in India
There are some products like Ulips which are investment-cum-insurance products, in their case the investment part is excluded from the Gross premium while calculating GST. Thus, as a result, a GST of 18 per cent is not applicable on the whole premium but is fixed to be levied on various charges that an investor pays, for example, fund management charges and mortality charges.
S. Vasudevan, Partner, Lakshmikumaran & Sridharan Attorneys said that as per section 80C of the Income-tax Act, any sum paid to effect or keep in force a contract of life insurance is allowed as a deduction. The term ‘sum paid’ is wide enough to include the annuity, charges levied by the insurer and the taxes that have been levied on the quantum of annuity paid. Thus, the GST paid on the instalment can be claimed as a deduction under 80C.
Understanding by an Example Quote
A person of age 30 years, non-smoker, if purchases TATA AIG Life Insurance’s Sampoorna Raksha policy, term insurance plan with a policy term for 30 years and the assured amount be Rs 2 crore, then, he/she needs to pay a basic premium of Rs 15,000 and a GST of Rs 2,700. The total premium amounts to Rs 17,700 which could be claimed as per section 80C. The Tax saving deduction amount is directly proportional and largely depends on the investment limit available under the particular section.
Sachin Vasudeva, a Delhi-based practising-chartered accountant, says “The phrase ‘any sums paid’ as used in section 80C of the Income-tax Act, 1961, is wide enough to cover the charges/taxes levied by the insurance company. It is now contractually provided in the policy document/ renewal intimation that GST would be recovered in addition to the premium. Accordingly, GST paid becomes a part of any sums paid to effect or keep in force a contract of life insurance and should be allowed as a deduction along with the premium.”
What to Do If GST is Not Reflecting in Premium Receipt?
The GST which has been paid by the employee on the insurance premium could be claimed by him as a deduction from income along with the premium amount in order to save tax. The taxpayer should be retaining premium payment-related documents which the premium and GST paid as proof.
Saraswathi Kasturirangan, Partner, Deloitte India said that the wording used under Section 80C and Section 80D of the Income Tax Act is “any sums paid or deposited….to effect or keep in force an insurance on the life of persons specified….” Accordingly, the deduction will not be restricted to the premium amount alone, it would include the GST amount as well. “Also, at times it may happen that when you view your premium receipt, you may not find the GST amount separately. In such a situation, the employee can claim the GST amount in their tax return and they should keep the supporting documents (which is the annual statement of policy premium from the insurer) with them in case authorities ask for the same,” she said.
