- The GST rates on insurance premiums will be charged at 18%
- All forms of cess charges like Swacch Bharat Cess and Krishi Kalyan Cess will be diluted
The much awaited goods and services tax or GST is now a reality. For insurance policies the GST rates have gone up to 18% from the earlier 15%, as part of the service tax component. At the same time, the upside of the move is that all forms of cess on premiums like Swatch Bharat cess (SBC) and Krishi Kalyan cess (KKC) which were collected along with the service tax on insurance premium has been diluted and dismantled in GST.
Both existing and new policyholders faced an increase in the premium amounts due to increase in GST rates by 3%. So, at a broad level, if your annual insurance premium outgo was Rs 50,000, it will now go up by Rs 1,500.
The insurers also braced up to higher compliance and administrative costs due to the increased number of GST returns, apart from facing the effect of taxability of inter-branch services.
There has been respite for corporate policyholders, which are typically general insurance policies wherein they benefit from the input tax credit on the GST paid on their policies, which was earlier available to them under the service tax. However, even corporate policyholders with group life and health insurance for their employees do not enjoy any input tax credit.
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Impact of GST on insurance premiums
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Plans
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Old Service Tax Rates
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GST Rates from July 1, 2017
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Change
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Term Insurance Plans
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15 % (Including SBC 0.5% +KKC 0.5%)
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18 %
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+ 3%
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ULIP (Unit Linked Insurance Plans)
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15 % (Including SBC 0.5% +KKC 0.5%)
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18 %
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+ 3%
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Conventional Policies (Life and Pension)
(Including Single Premium – life) First Year
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3.75 % (Including SBC 0.125% +KKC 0.125%)
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4.5%
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+ 0.75%
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Conventional Policies (Life and Pension)
- Second Year
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1.875 % (Including SBC 0.0625% +KKC 0.0625%)
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2.25 %
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+ 0.375%
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Single Premium Annuity Policies
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1.5 % (SBC 0.05% + KKC 0.05%)
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1.8 %
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+ 0.3%
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Health Insurance Plans
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15 % (Including SBC 0.5% +KKC 0.5%)
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18 %
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+ 3%
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Cost of delay
GST is applicable on interest charged on delayed receipt of premium, which is applicable according to the type of premium collected. The GST on late payment will be charged at applicable rates on the interest portion paid along with the revival amount.
GST exemption in insurance
- 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
- Jana Shree Bima Yojana (JBY)
- Aam Aadmi Bima Yojana (AABY)
- Micro Insurance up to Rs. 2,00,000
- Varishta Pension Bima Yojana
- Pradhan Manthri Jeevan Jyothy Bima Yojana
- Pradhan Manthri Jan Dhan Yojana
- Pradhan Manthri Vaya Vandana Yojana
