Impact of GST on insurance and banking

May 29, 2021 Finance Talk Valli Sarvani No comments

Before the implementation of the Goods and Services Tax (GST), service tax was charged on insurance premiums. This service charge was 15%. But, the GST applies on insurance premiums is 18%, which made them costlier.

Similarly, many banks used to charge 15% as service tax for their service. But now, they became expensive due to an increase in tax under GST, which is 18%.

Thus, GST is impacting both the banking and insurance sectors.

There are different types of life insurance policies like term insurance, ULIPs, and endowment policies.

GST rate on these policies differ. GST applies at 18% on premium paid for Term insurance or basic insurance policies. GST is charged at 1.8% for single-premium annuity policies. GST is levied differently on endowment plans. It is levied at 4.5% for the first year premium and 2.25% for subsequent year premiums.

GST is levied at 18% on the health insurance premium and general insurance premium.

However, insurance provided by government schemes is exempted from GST.

It includes the following schemes:

Pradhan Mantri Jeevan Jyoti BimaYojana – life insurance (accidental death and disability cover for the people aged between 18 and 50 years)
Pradhan Mantri Vaya Vandan Yojana – retirement cum pension scheme for senior citizens
Aam Aadmi Bima Yojana (AABY) – social security scheme for the poor (death and disability cover)
Varishtha Pension BimaYojana – pension scheme for senior citizens
Janashree Bima Yojana (JBY) – health insurance scheme for the poor

Apart from the above-mentioned schemes, all other government-backed insurance policies do not attract GST.

Taxpayers can claim a deduction for the GST also, subject to the maximum amount allowed for a deduction. For instance, you can avail a tax deduction of up to ₹1.5 lakhs on the insurance premium paid along with the GST under Section 80C.

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