GST Impact on the Insurance Sector with Slab Rates

Adjoined to every insurance policy there are additional costs (like mortality cost) one needs to pay while availing of the insurance. Apart from the additional insurance cost comes the Goods and Service Tax (GST) which is to be paid by the buyer. However, this piece of information is not primarily revealed in advertisements. Such costs are additionally beared by the purchaser of the insurance policy other than the actual cost impact of GST on the insurance sector.

56th GST Council Meeting

• The Council has exempted the insurance sector from the 18% GST rate. This will take effect from September 22, 2025.

Latest Update in the Insurance Sector

• 53rd GST Council meeting covered specific insurance schemes. Read more
• The purpose of the circular is to clarify that No Claim Bonuses are admissible deductions for the valuation of insurance services offered by insurance companies. Read More
• IRDAI (Insurance Regulatory and Development Authority) has published a circular regarding GST tax is applicable to Insurance intermediary services supplied through IRDAI. Read more

Non-Life Insurance Agents Voiced for Removal of 18% GST

The insurance sector plays a crucial role in the development of any economy and is also a source of employment and Gross Domestic Product in any economy. in any economy. The Confederation of General Insurance Agents’ Associations of India, an umbrella body of non-life insurance agents, on May 25 urged the government to withdraw the 18% GST on individual health insurance policies so that more people are encouraged to buy more health insurance that is also considered a measure of social security.

The above-mentioned confederation presented a memorandum to:

• Finance Minister Nirmala Sitharaman along with a
• Copy to the GST Council
• Also to the Parliamentary Standing Committee on Finance.

The issue raised in the memorandum was as follows — It is an anomaly that all insurance policies attract 18% GST. The body of non-life insurance agents voiced an opinion that there should be a preference for policies on personal lines that are availed by individuals in comparison to insurance policies on commercial lines which are availed by industry and commerce.

The truth is that premium paid for policies catering to industry and commerce gets the input tax credit. However, individuals who purchase insurance policies for health, household security, personal accidents and so on have to bear 18% GST which discourages the insurance industry.

There are nearly 11 lakh self-employed licensed non-life insurance agents across the country who play a crucial role in individually promoting, marketing and selling such policies.

Relief to the LIC Holders Under GST

In a bid to offer relief to the LIC holders, the government has now cleared that the LIC maturity amount will not be levied with GST. The changes may be done in the view of the current pandemic and thus create a sign to the people who were about to withdraw their Maturity sum from the LIC. However, the premium of insurance policies is still applicable with GST.

GST Rates Impact on Insurance Policies/Claims

Different insurance policies attract different GST slab rates. Here are some the examples:

1. Term policies attract GST on the insurance sector at the rate of 18%. It is the cheapest policy among all which gives insurance to the customer against his/her mortality cost. So clearly from the annual premium of Rs. 5000 paid by you under the term policy Rs. 900 will be taken as GST. In case of an add-on such as insurance against accidental death (additional compensation at the time of accidental death) 18% GST is charged for the additional premium.

2. There is an 18% GST on unit-linked insurance plans (Ulips). Apart from that, the policy involves additional costs like premiums and fund management charges. The total amount paid under Ulip is divided into two separate segments one of which goes to insurance and the other goes to investment. No GST is charged on the investment side.

Read Also: GST Impact on CA and CS Professional

3. When traditional policies are concerned, which are a mix of insurance and investment, initially there is a 4.5% GST rate on the first-year premium and rest of the years the rate will be 2.25% on the premiums. For instance, while paying the annual premium of ₹10,000 know that in the first year ₹450 will go towards GST and then ₹225 will be charged as GST on premiums for the rest of the years.

4. If we talk about insurance pension plans or annuities, where a lump sum amount is paid by the customer and in return, he/she gets the annual income, a GST of 1.8% is applicable. For instance, if a lump sum of ₹10 lakh is paid by the customer to get an annual income of ₹80,000 per year then the part of the GST will be ₹18,000 annually.