An insurance policy is made of two parts – investment and risk protection, GST is levied only on the risk factor part and not the investment part and therefore term plans will be influenced the most under GST.
Now the current situation is that the insurance policy is divided into two parts – investment and risk protection. However the point to be noted here is that GST is imposed only on the risk protection part and not the investment part, which implies that the term plans will see the biggest influenced under GST.
Under these circumstances, the Life Insurance Corporation of India (LIC) has stated that the Service Tax on all LIC products has been replaced by GST and the new charge will be slightly higher in comparison to the previous Service Taxes.
They have formulated an insurance policy which would consist of two parts – investment and risk protection, and GST has been imposed on the risk factor part and not the investment part, which would eventually mean that the term plans will be effected the most under GST. Not just the LIC Policies but also insurance premiums of all types of health plans, vehicle insurance policies, endowment plans, etc have seen a rise under GST.
The Term Insurance Plans, Health Insurance Plans and ULIP charges are have witnessed a raise from 15% Service Tax to 18% GST. NB premium (including Single Premium) of Life Insurance and Pension plans and the First year premium of Annuity plans has been altered from 3.75% service tax to 4.5% GST now.
Previously the Renewal premiums held 1.875% Service Tax, but now they will come up with 2.25% GST. Also, the Service Tax for Single Premium of Annuity Plans has been raised from 1.5% to 1.8% GST.
Although, all these changes will have a very little impact on everyone, but it is the middle class segment of the society which would experience the major impact of it as most of their investments are usually term plans of LIC than any other mode of investment.
To provide some comfort to the customers, there are a few LIC plans that continue to be exempted under GST exactly the way they were exempted from Service Tax prior to July 1st 2017:
(1) Janashree Bima Yojana (JBY); or
(2) Aam Aadmi Bima Yojana (AABY);
(3) Life micro-insurance product as approved by IRDA having a maximum amount of cover of ₹50,000
(4) Varishtha Pension Bima Yojana;
(5) Pradhan Mantri Jeevan Jyoti Bima Yojana;
(6) Pradhan Mantri Jan Dhan Yojana;
(7) Pradhan Mantri Vaya Vandan Yojana;
(8) Any other insurance scheme of the State Governments as recommended by the GST Council