How GST increases your insurance cost

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Dheeraj wanted to buy a life insurance policy for himself and his budget was Rs 1500. An insurance agent offered him a term policy of Rs 1 crore for a premium of Rs 1409 per month. He liked the deal and it also suited his budget. However, when he paid the premium amount, it turned out to be Rs 1663.

Dheeraj first thought that he was misinformed by the insurance agent, but on inquiry he found that 18% GST was levied which increased the premium by Rs 254 a month. Annually, his insurance cost rose by Rs 3048.

How GST on insurance works You shouldn’t choose your insurance policy based on the premium, but it is pertinent to understand how GST levied on it. Whether it’s a term or endowment plan for life insurance, ULIP, health insurance, travel insurance or auto insurance – 18% GST is levied on the premiums. GST is also applicable on fire insurance, home insurance and even theft insurance. Insurance companies do not get input tax credit on GST, hence the tax burden falls directly on consumers. However, GST is not levied on government backed insurance schemes such as PM Vya Vandana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Virishtha Bima Yojana.

In a single premium policy, GST is levied only on 10% of the premium. While in other policies, GST is levied on 25% of the first year’s premium and 12.5% of the premium from the second year. For instance, if your premium is Rs 1,000, GST will be levied on Rs 250 i.e. 25% of the premium in the first year. During the second year, GST will be levied on Rs 125 i.e. 12.5% of Rs 1,000.

Tax expert Gauri Chaddha believes that, while GST has increased the burden, individuals can also claim tax deduction against the premium under section 80C and section 80D. Under section 80C, individuals can get deduction for up to Rs 1.5 lakhs for investments in specific avenues. Also, a maximum deduction of up Rs 25,000 can be claimed on health insurance premium for self, spouse or kids.