GST on LIC Premium in 2024 – Latest GST Rate For Life Insurance Premiums

The implementation of the Goods and Services Tax (GST) in India has significantly impacted the insurance sector, including life insurance. Previously subject to Service Tax, life insurance premiums now attract GST at varying rates depending on the policy type. This guide delves into the complexities of GST on life insurance premiums.

Understanding GST on Life Insurance Premiums

Latest GST Rates for LIC Insurance Policy Premiums

The GST rates for different LIC life insurance and health policies are outlined below:

* GST at a rate of 18% is levied on 25% of the premium charged in the first year. 

** GST at a rate of 18% is levied on 10% of the single premium charged for annuity plans.

*** GST at a rate of 18% is levied on 12.5% of the premiums charged in subsequent years.

Now, let us understand the GST rates on LIC premiums in detail.  

GST on Premiums for LIC Term Plans

For LIC term life insurance policies, the GST is charged at a standard rate of 18% on the premium amount. Term plans are the most affordable form of life insurance, as they only cover mortality costs, meaning the entire premium is subject to this 18% GST rate.

For example, if a policyholder purchases a LIC term life insurance policy with an annual premium of ₹10,000, the GST applied would be 18%. This results in an additional ₹1,800 being payable, bringing the total cost to ₹11,800.

Additionally, if the policyholder chooses to add riders, such as an accidental death benefit, the additional premium for this rider is also subject to 18% GST. This ensures that both the base premium and any supplementary coverage are taxed consistently under the GST regime.

GST on Premiums for LIC Endowment Plans

The GST on LIC’s endowment plan premiums varies depending on the year of payment. For the first-year premium, a GST rate of 4.5% is applied, while premiums paid in subsequent years attract a lower GST rate of 2.25%.

To break it down, although a GST of 18% is technically charged on a portion of the premium (25% of the first year’s premium and 12.5% of the subsequent years’ premiums), this has been simplified into effective GST rates of 4.5% and 2.25% respectively.

For example, if a policyholder pays an annual premium of ₹10,000 for a LIC endowment plan, the GST in the first year would be 4.5%, amounting to ₹450. In the following years, the premium will be subject to a GST of 2.25%, resulting in an additional ₹225.

Related Read: GST on Insurance Premiums: Impact, Tax Savings, and More

GST on LIC Pension Plans or Annuities

For LIC pension plans or annuities, GST rates depend on the premium payment method. Regular premium pension plans attract a GST of 4.5% on the risk protection component of the policy. In contrast, single premium annuity plans, where you make a one-time payment for annual post-retirement income, incur a lower GST rate of 1.8%.

Note: GST at 18% is levied on 25% of the premium in the first year and GST at a rate of 18% is levied on 10% of the single premium charged for annuity plans.

For example, if you pay ₹10 lakhs as a single premium for a LIC annuity plan, the applicable GST would be 1.8%, amounting to ₹18,000. This structure aligns the tax burden with the policy’s nature.

GST on LIC Unit Linked Insurance Plans (ULIPs)

Unlike other LIC life insurance policies, unit-linked insurance products (ULIPs) do not attract GST on their premium payments. Instead, a GST rate of 18% is applied to specific charges associated with ULIPs, such as fund management fees, premium allocation, policy administration, and mortality charges.

This distinction arises because ULIP premiums are split into two parts: one portion is invested in market-linked funds, and the other provides insurance coverage. The investment component of the premium is not subject to any GST. Only the charges related to the services provided—such as managing the fund and administering the policy—are liable for the 18% GST.

This structure ensures that policyholders are taxed only on the service-related aspects of their ULIP, keeping the investment portion free from any GST levy.

GST on LIC Health Insurance Plans

LIC also offers health insurance plans, and the premiums for these plans are subject to a GST rate of 18%. This applies to both individual and family health plans offered by LIC.

For example, if a policyholder purchases a LIC health plan with a premium of ₹10,000, the GST applied at 18% would amount to an additional ₹1,800. This brings the total cost of the premium to ₹11,800.

This consistent GST rate across health insurance policies ensures that policyholders are aware of the tax implications when securing health coverage through LIC.

GST on Other Components of LIC Policies

In addition to the premiums, several other components of LIC policies are subject to GST. These include:

1) GST on Late Fees

A GST rate of 18% is applied to interest charges incurred due to delayed premium payments. However, no GST is applicable to late fees for policies that are exempt from GST.

2) GST on Cheque Dishonour Charges (CDA)

An 18% GST is also charged on cheque dishonour charges (CDA), including any associated postage costs.

GST Exemptions for LIC Premiums

As per Notification No. 12/2017, dated 28th June 2017, the following insurance services and schemes are exempt under the GST regime:

• Insurance services provided by Insurance Regulatory and Development Authority (IRDAI)
• Annuity plans under the National Pension Scheme (NPS) regulated by PFRDA
• Life insurance services provided under government-run schemes, such as – Janashree Bima Yojana (JBY)
• Varishtha Pension Bima Yojana (withdrawn in 2015-16)
• Pradhan Mantri Jeevan Jyoti Bima Yojana
• Pradhan Mantri Jan Dhan Yojana
• Aam Aadmi Bima Yojana (AABY)
• Pradhan Mantri Vaya Vandana Yojana
• Life micro-insurance items with a maximum cover of Rs. 2 lakhs, as approved by the IRDAI 
• Any other insurance scheme of the state governments as notified by the Indian government on the recommendation of the GST Council.

Availability of Input Tax Credit on GST for LIC Premiums

Under the GST regime, registered taxpayers generally have the option to claim Input Tax Credit (ITC) on the GST paid for their business-related goods and services. However, there are specific restrictions regarding LIC premiums:

1) Individual Policyholders:

Individual policyholders cannot claim ITC on GST paid for LIC premiums. This is because LIC policies are intended for personal consumption rather than business use.

2) Corporate Policyholders:

Corporate policyholders can claim ITC on the GST paid for general insurance policies used for business purposes. However, ITC is not available for group life and health insurance plans provided to employees, as per Section 17(5)(b) of the CGST Act, 2017, unless such claims are mandated by law.

This distinction helps manage GST liabilities appropriately for both individual and corporate policyholders, ensuring compliance with tax regulations.

Conclusion

By navigating GST on LIC premiums effectively, policyholders can not only manage their insurance costs more efficiently but also ensure compliance with tax regulations. This understanding enables them to make informed financial decisions, optimize their tax liabilities, and maintain accurate records. 

Frequently Asked Questions

Q.1) What is the GST rate on LIC premium?

The GST rate on LIC premiums varies by policy type. Term plans and health plans attract an 18% GST, while endowment plans and pension plans have a GST of 4.5% for the first year and 2.25% for subsequent years. ULIPs have an 18% GST on fund management and other charges, but not on the premium itself.

Q.2) Is LIC premium with GST under 80C?

Yes, LIC premiums, including those with GST, are eligible for tax deduction under Section 80C of the Income Tax Act. This section allows deductions for premiums paid on life insurance policies up to a maximum limit of ₹1.5 lakh per annum.

Q.3) How to calculate LIC premium without GST?

To calculate the LIC premium without GST, divide the total premium amount by 1 plus the GST rate. For example, if the total premium including 18% GST is ₹10,000, the premium excluding GST is ₹10,000 / 1.18 = ₹8,474.58.

Q.4) Is GST payable on LIC commission?

Yes, GST is applicable on LIC commission. Agents or intermediaries earning commissions from LIC policies are subject to an 18% GST on the commission received.

Q.5) When is GST charged on LIC premiums?

GST is charged on LIC premiums at the time of policy issuance or renewal. The GST is added to the premium amount payable, and the rate varies depending on the type of policy.

Q.6) Is GST refundable on LIC premiums?

No, GST on LIC premiums is generally not refundable. It is a consumption tax and is not subject to refund, except in specific cases where an exemption or special provision applies.

Q.7) Can I claim input tax credit for GST paid on LIC premiums?

Individual policyholders cannot claim input tax credit (ITC) on GST paid for LIC premiums as these policies are for personal use. However, corporate policyholders may claim ITC on GST paid for general insurance policies, excluding group life and health plans for employees unless required by law.

Q.8) How does GST on LIC premiums affect my overall tax liability?

GST on LIC premiums adds to the cost of insurance but does not directly affect your income tax liability. However, premiums paid, including GST, qualify for tax deductions under Section 80C of the Income Tax Act, reducing your taxable income.

Q.9) Are there any tax benefits associated with GST on LIC premiums?

While GST itself does not offer tax benefits, the premiums paid, including GST, can be deducted under Section 80C of the Income Tax Act. This can lower your overall taxable income and reduce your tax liability.

Q.10) How does GST on LIC premiums compare to previous taxes?

Previously, LIC premiums were subject to a 15% service tax. Under GST, the rates have changed based on policy types, with some premiums attracting higher rates (up to 18%). GST simplifies the tax structure but may increase the cost compared to the previous service tax regime.