What is GST Rate on LIC Premium?

What is GST?

Goods and Services Tax is an indirect tax that was brought into the picture to replace several indirect taxes in the country like VAT, excise duty, service tax, and many more. As GST was implemented, the service tax became GST’s part. Nevertheless, along with so many other industries, GST affected the insurance industry.

Effect of GST on Life Insurance Premiums

While we try to comprehend the effect that GST left on Life Insurance premiums. However, for that, we also need to understand the way Life Insurance policies work. Basically, Life Insurance policies are of three types. You can choose from them. And they are Unit Linked Insurance Plans (ULIPs), Term insurance plans, and Endowment policies. Before the introduction of the GST, the premiums paid were considered service tax and were charged at 15%. After GST was introduced, all those rates were replaced. The LIC GST rate is now calculated at 18%. This has resulted into an increase in the premium charges.

GST Rate on LIC Premium

The GST rates change as per the type of policy. Mentioned below is the table that explains the LIC premium GST rates.

Type of LIC Policy	GST Charged On	GST Rate
LIC Life Insurance (New Business Premium including Single Premiums)	Premiums	4.50% *
LIC Term Insurance	Premiums	18%
ULIPs	Charges	18%
Renewal Premium of LIC’s Life, Pension and Annuity Plans	Premiums	2.25% ***
LIC Health Plans	Premiums	18%
LIC Pension Plans (New Business Premium including Single Premiums)	Premiums	4.50% *
LIC Annuity Plans	First Year Premium       Single Premium	4.50% *   1.80% **

Sample Examples of GST Amount charged on LIC Policies

Here is a sample illustration to understand GST on LIC policies better:

Let’s say you pay a premium of INR 10,000 per year. As per the GST rates, you will pay the below amount on different LIC policies.

• On-Term Insurance Plans –18% GST applies to LIC term plans. Hence, the insured will pay INR 1800 towards GST on an annual premium of INR 10,000 on a term insurance policy.
• On ULIPs – GST is not charged on ULIPs on the premiums paid, rather 18% GST is imposed on the fund management charges.
• On Life Endowment Policies – Under these policies, the GST applicable is 4.5% on the premium paid in the first year. For the premiums paid subsequently, a 2.25% GST is imposed. So, on the premium of INR 10000, you will pay a GST of INR 450 for the first time and INR 225 subsequently.
• Single Premium Annuity Plans – Since in annuity plans, you pay the premium in lump sum amount, the GST is imposed to this lump sum amount at a 1.8% GST rate. Let’s say you purchased an annuity for INR 10 Lakh, so the applicable GST will be INR 18,000.

GST Charged on Several Other Components

Other than the premiums, GST charges are implemented on delayed premium payments, extra premiums for riders, charges that have been recovered from the policyholders, and many more

• A GST rate of 18% is applied on the interest paid against delayed premium payments
• A GST rate of 18% is applied on Cheque Dishonor Charges including postage
• GST is applied in alteration fees, quotation fees, duplicate policy preparation, the fee charged for policy termination or changing nominations, and many more.

GST Rates: Before and Now

Let us take a look at the LIC policy GST rate before it came into effect vs. now.

Insurance product	Applicability	Prior to GST	Currently
Single-Premium Annuity Policies	On 10% of premium	1.50%	1.80%
Term Insurance	On entire premium	15%	18%
Endowment Plans (First Year)	On 25% of premium	3.75%	4.50%
Endowment Plans (Renewal)	On 12.5% of premium	1.875%	2.25%
ULIPs	On premium except for investment amount	15%	18%
Car Insurance	On entire premium	15%	18%
Health Insurance	On entire premium	15%	18%
Riders Premium	On entire premium	15%	18%

Exemption of GST

GST exemptions were established by the GST Council under some insurance schemes as well as services. Those are as follows:

• Aam Aadmi BimaYojana(AABY)
• Janashree BimaYojana(JBY)
• Pradhan Mantri Jan Dhan Yojana
• Life micro-insurance products with a maximum cover of Rs. 2 Lakhs (as approved by the Insurance Regulatory and Development Authority)
• Varishtha Pension BimaYojana
• Pradhan Mantri Jeevan Jyoti BimaYojana (PMJJBY)
• Life insurance by way of the National Pension Scheme (NPS)
• Pradhan Mantri Vaya Vanadan Yojana
• Other insurance schemes of the State Government – advised by the Government of India on the recommendation of GSTC.

The effect of GST is not very much though, but the existing as well as the new policyholders still have to bear the extra costs. GST does not have any effect on the calculation of several life insurance policies since the important parameters remain the same.

Taxation Possibilities on LIC Plans Under GST

Most insurance plans have two aspects – one is related to investment and the other is related to risk protection. GST is levied only on the protection against risk. Hence, the rates of GST applied to the insurance premiums of various policies of life insurance also vary depending on the category of life insurance plans. These include endowment plans, term plans, pension policies, and Unit Linked Insurance Plans (ULIPs).

GST Imposed on Premiums of LIC Term Plans 

These are the most cost-effective plans and they only provide death benefits in case of death of the insured during the policy period. 18% is the GST imposed on premiums of term insurance plans.

So, on an INR 10,000 premium, the GST applicable is INR 1,800 (18% of 10,000). Also, 18% GST is levied on the extra premium paid for the rider/ add-on such as the accidental death add-on.

GST on Premiums of LIC Endowment Plans

These LIC plans are dual benefit plans with a combination of insurance and investment. Here, a 4.5% GST is levied on the premiums in the first year of the policy, while a GST of 2.25% is imposed on subsequent premiums. So, on the first-year premiums of INR 10000, you will pay a GST of INR 450 and INR 225 subsequently.

GST on Premium of LIC Annuities or Pension Plans

Under annuity plans, you pay the premium in a lump sum amount. Hence, the GST is imposed on this lump sum amount at a 1.8% GST rate. Let’s say you purchased an annuity for INR 10 Lakh, so the applicable GST will be INR 18,000.

GST on Premium of ULIPs under LIC

GST is not charged on ULIPs on the premiums paid, rather 18% GST is imposed on fund management. These charges include policy administration charges, premium allocation charges, and charges on mortality among others.

As you know, a part of the premium of a ULIP is invested in different investments, while the remaining is used for insurance coverage. The invested part doesn’t come under the purview of any GST.

GST on the Premiums of LIC Health Plans

18% GST is imposed on the premiums of LIC health insurance plans, including family as well as individual plans. So, on a premium of INR 10,000, the GST levied is 18% which comes to INR 1,800.

GST Imposed on Other Elements of LIC Plans

Various other components are involved while imposing GST on LIC policies in addition to the premiums charged, such as 18 % GST on Late payment of Fees/Premiums, 18% GST on CDA or Cheque Dishonour Charges, and GST levied on the Charges Recovered from alteration fees, duplicate policy preparation, quotation fees., etc.

SAC Code and GST Rate on the Premium of LIC Insurance Policies 

GST rates applied on LIC life and health insurance plans are mentioned below:

Policy type	Supply value	Pre-GST service tax	GST rate
LIC Term plans and add-ons	Premium	15%	18%
LIC Life Insurance Plans and Endowment Plans	Premium	3.75%-1st year 1.88%- 2nd year onwards	4.5%-1st year 2.25%- 2nd year onwards
LIC Pension Plans	Premium	3.75%-1st year 1.88%- 2nd year onwards	4.5%-1st year 2.25%- 2nd year onwards
LIC Single premium annuity plans	Premium	1.5%	1.8%
Unit Linked Insurance Plans (ULIPs)	Charges	15%	18%
LIC Car, Bike, and Health Plans Insurance	Premium	15%	18%

The SAC codes applied to insurance policies are mentioned below:

Description	SAC Code
Pension plans and Insurance services	99713
Life insurance services	997132
Reinsurance services	99714
Accidental death insurance services	997133
Aviation, marine, and transport insurance services	997135
Motor vehicle insurance services	997134
Non-life insurance services	997139
property insurance services	997137
Travel and Freight insurance services	997136