GST on LIC Premium: GST Rate For LIC Policies & GST Exemptions

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

An 18% GST is applied to the entire premium amount of LIC term life insurance. 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%.

Note: Technically, GST is levied at 18% on 25% of the first-year premium, resulting in an effective rate of 4.5%. For subsequent years, GST at 18% is charged on 12.5% of the premium, leading to a simplified rate of 2.25%.

For example, if a policyholder pays an annual premium of Rs. 10,000, the GST in the first year would be 4.5%, amounting to Rs. 450. For the following years, the GST would drop to 2.25%, which equals Rs. 225 per premium payment.

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)

A GST rate of 18% is applied to charges associated with ULIPs, such as fund management fees, premium allocation, policy administration, and mortality charges, rather than on the premium itself.

This is because ULIP premiums are divided into two parts: one is invested in market-linked funds, which are exempt from GST, and the other covers insurance. The 18% GST applies only to service-related charges, ensuring the investment portion remains tax-free.

GST on LIC Health Insurance Plans

LIC health insurance plans, whether individual or family, are subject to an 18% GST. 

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.

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.

Related Read: GST Exemption: List of Goods and Services Exempt Under GST

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.

Place of Supply for GST on LIC Premiums

Determining the place of supply is crucial for the correct levy of GST on LIC premiums. The place of supply is defined based on the following criteria:

• Registered Policyholders: The place of supply is the location of the insured or policyholder if they are registered.
• Unregistered Policyholders: For unregistered policyholders, the place of supply is the location of the recipient of services as recorded by the supplier.
• Multi-State Registrations: If the recipient is registered in multiple states, the place of supply is where the policy is issued by the supplier company.
• Group Insurance Policies: For group insurance policies with multiple branches, the place of supply is the location of the company’s head office.
• ULIP Funds: The place of supply for ULIP funds is the location of the fund management office.
• Master/Group Policies: For single premium master/group policies with beneficiaries across different states, the place of supply is the location of the registered person paying the premium. 

SAC Codes for Insurance Policies

In the context of GST, Services Accounting Codes (SAC) are used to classify various types of services, including insurance. Each insurance policy type falls under a specific SAC code, which determines how GST is applied.

Here’s a list of key SAC codes relevant to insurance services:

Key Advance Rulings on GST for LIC Premiums

Several advance rulings have provided clarity on the application of GST to LIC premiums and related services. These rulings help determine how GST applies in specific circumstances and provide important legal interpretations.

Karnataka AAR Ruling No. KAR ADRG 30/2020

In this ruling, the Karnataka Advance Ruling Authority (AAR) confirmed that proceeds received at the maturity of a LIC policy are not subject to GST. The rationale is that once the policy matures, no active service is being provided, and therefore the maturity sum does not fall under the scope of GST. As a result, the maturity proceeds should not be included in the aggregate turnover for GST purposes.

Telangana AAR Order No. 28/2022

In a case brought by M/s Hyderabad Metropolitan Water Supply and Sewerage Board, the Telangana AAR ruled that the GST exemption under Entry No. 3 of Notification No. 12/2017 – Central Tax (Rate) does not apply to health insurance premiums paid for employees and pensioners.

The board, a government entity, had argued that its health insurance services should be exempt from GST. However, the AAR ruled that municipal and statutory bodies are liable to pay GST on medical insurance premiums, highlighting that such services are not considered “pure services” under the exemption entry.

These rulings emphasize the nuanced treatment of GST when it comes to LIC policies, with key distinctions between services provided during the policy’s term and the proceeds paid upon maturity. They also underscore that government entities are not exempt from GST on insurance premiums.

Frequently Asked Questions

Q.1) How much GST is levied on LIC premium?

LIC 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.