All About GST Input Credit On Insurance Premium

Written by : Knowledge Centre Team

2024-08-02

1029 Views

Goods and Services Tax may have simplified things for most other goods, but for insurance, it has done little good or bad. Regardless, it has definitely created more questions than answers.

How does the GST apply to your insurance premium? Is it possible for you to claim the input tax credit on the GST paid on insurance premium? Do you need to deduct GST amount while claiming deductions under section 80C and 80D?

We answer these and many other such questions in this article:

GST Application on Life Insurance Premiums

GST rate for insurance policies is 18%. However, it does not necessarily mean that if your policy premium is Rs. 1 lakh you will need to pay Rs. 1.18 lakhs. GST applies only on the risk premium in life insurance policies.

Also, the application of GST on the total premium is different under different scenarios. Fortunately, there are only two scenarios you need to consider:

Paying premium in regular mode (regular or limited pay)
Paying premium in a single payment (single premium policies)

Life insurance policies are generally of the following three types:

Term Insurance (Pure risk policies)
Unit Linked Insurance Plans (ULIPs)
Endowment Insurance Plan – guaranteed savings and pension plans

The GST will apply in the following manners to these policies:

	Regular Premium	Single-Premium
Term Insurance	18% on total Premium	18% on 10% of the Total Premium
ULIPs	• 18% on the Mortality and all other charges applicable to the policy. • Does not apply to the investment premium.	• 18% on the Mortality and all other charges applicable to the policy. • Does not apply to the investment premium.
Endowment Plans	• 18% on 25% of the premium in the first year • 18% on 12.5% of the premium for subsequent years	18% on 10% of the Total Premium

Why Don’t You See GST on Your ULIP Premium Receipt?

If you want to tally your GST applied to your ULIP premium cost, you may find that the premium doesn’t add GST to it. This is because the mortality and other charges will be deducted from your unit balance instead of premium.

But this will be true only for those policies which do not charge a premium allocation charge and mortality charge upfront. For example, Invest 4G plan from Canara HSBC Life does not have these charges.

Consider that your annual premium for ULIP plan is Rs. 1 lakh and you are investing in Invest 4G plan. The whole amount is invested in the unit-linked funds in the plan. Considering that the mortality charge for the first year is Rs. 1000.

The plan will deduct the charge along with applicable GST (Rs. 1180) by liquidating the fund units every month, along with other charges.

So, you may not see any GST deducted from your premium. Instead, this plan will deduct GST while deducting the applicable expenses from the fund value of the policy. However, if your ULIP plan charges an upfront premium allocation charge, you may see a GST deduction along with the charge.

Input Tax Credit (ITC) on the GST Paid for Life Insurance

If you are the end-user of the policy, you do not have the option of claiming the GST input tax credit on life insurance separately. However, if you are an employer providing life insurance as an employee benefits scheme, such as gratuity, leave encashment etc. you can claim the GST paid on these plans for ITC.

Claiming GST on Life Insurance Premium as Deduction

You can claim the entire sum paid as part of the health or life insurance premium. This sum will include GST as well. So, if your total life insurance premium for the year was Rs. 1.5 lakhs including GST, you can claim the entire amount as a deduction under section 80C.

Similarly, health insurance premium also receives full deduction under section 80D.

Thus, you need not claim an ITC for the GST you have paid on individual life and health insurance policies. However, in case of other insurance covers, such as motor and house, you cannot claim any deduction as an individual user of the cover.

Only in cases where you are providing commercial service and have purchased the insurance as part of that service, can you claim ITC on GST paid on insurance.

Presumptive Income Tax Filing for Business and Individuals

Section 16 of the Income Tax Act

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