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The Goods and Services Tax (GST) era has applied 18% against the earlier 15% taxation to the Indian insurance sector; however, some insurance policies have to pay less than 18%
Post-GST impacts on taxation have left most sectors reeling with different slabs and confusion regarding the way ahead. The insurance sector, which was so far taxed at 15 percent, will now face 18 percent taxation on most products under GST. However, policy buyers and premium payers need not fret, as all insurance products will not be levied with equal tax rates.
Then and Now
Here’s a quick synopsis of pre and post GST tax rates on different insurance policies.
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Differential rates of taxation are underway as per the premium paying term, type of product, and category of insurance (life or general). The rate of escalation is between 3 and 30 basis points in accordance with the nature of insurance products.
- New motor, health, term, or unit-linked insurance plans is now taxed at 18 percent (pre-GST the service tax was 14 percent plus cess, adding to 15 percent).
- The tax rate is 4.5 percent in case of a single premium policy or endowment policy.
- Service charges of single premium of annuity products and renewal premium policies will be charged at 1.8 percent and 2.25 percent respectively.
- Single premium annuity plans will attract 1.8 percent as tax under GST.
- There is no disclosure so far on tax exemptions for government-aided insurance and small ticket policies in the GST regime.
Exemptions on Certain Insurance Schemes
- Life insurance schemes such as Aam Aadmi Bima Yojana (AABY) or Janashree Bima Yojana (JBY) are exempted from tax.
- Life micro-insurance products under the Insurance Regulatory and Development Authority umbrella and providing maximum coverage of ₹50,000 will not attract tax.
- Services of insurance schemes under Pradhan Mantri Jeevan Jyoti BimaYojana and Varishtha Pension Bima Yojana are also tax exempted.
- Certain insurance schemes of State governments, as notified by the GOI as per GSTC recommendations, will be added to the tax exemption list.
Last Word
Post GST, even though there is a nominal hike of 3 percent, the burden on insurance plans and premiums can be daunting for most policyholders. This article has touched upon the updated GST rates in the insurance sector and some important exemptions that will remain unaffected after GST implementation. The practical impacts of this tax escalation will only come forth in due course.