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GST on Insurance


GST is levied on almost all industries, and the insurance sector is no exception. Know about the GST regulations for your insurance firm and stay GST compliant.

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Overview of GST on Insurance

The Goods and Services Tax (GST), which replaced the service tax, VAT, excise duty, and other taxes, was implemented in 2017 and applied to all goods and services. GST is applied to insurance companies as well.

Since insurance firms are commonly known to offer financial protection during medical emergencies, health insurance holds a major share of the Indian market. Because of the necessity of insurance and the importance of rising medical costs, the service sector that provides insurance has grown significantly.

Before the introduction of the GST, service taxes on life insurance premiums totaled 15% and included the Basic Service Tax, Swachh Bharat Cess, and Krishi Kalyan Cess. Following the introduction of the GST Registration Process, the GST on life insurance policies was set at a uniform 18%.

The final consumers, the policyholders, were impacted by this increase from 15% to 18% because it increased the premiums they were required to pay for their policies.

Calculation of GST on life insurance

It is necessary to understand how it is calculated on the life insurance premium. The calculation for the eligible amount to levy 18% GST is here:

  • Scenario 1: The amount allocated for investment or for saving on behalf of the policyholder shall be deducted from the gross premium
    For example, Gross premium = ₹ 100 and Investment portion is ₹ 60
    So, Life insurance to be taxable = ₹ (100-60) = ₹ 40
    And the GST calculated at the rate of 18% = ₹. 40 * 18% = ₹ 7.2
  • Scenario 2: The policy involves a single premium annuity, and the tax shall be calculated at the rate of 10% on the premium amount
  • Scenario 3: For any cases except the two mentioned above, the GST shall be levied at 25% for the first year; from the 2nd year onwards, it will be 12.5%
  • Scenario 4: If the policyholder pays the total premium for the risk covered, a rate of 18% GST shall be levied.

GST on Motor Insurance

As per the recent amendment in the Motor Vehicles Act, motor insurance is mandatory if a person owns a bike, a car, or any other vehicle coming under the purview of the Motor Vehicles Act. Here, 18% GST is levied for motor insurance.

GST on Home Insurance

The premium for home insurance is subject to an 18% GST. This policy combines various personal insurance protections, such as losses to one's home, its contents, loss of use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may occur at home or at the hands of the homeowner within the policy's territory, as well as financial protection against disasters.

GST on Travel Insurance

Travel insurance often serves as protection in medical emergencies during travel or loss of baggage. GST is levied at a rate of 18% on travel insurance too.

Benefits of GST on Insurance

Whenever any tax or a new rule is levied, queries are raised on its benefits to the general public. Some of the benefits of GST on insurance services are listed below:

  • As GST raises the overall cost of an insurance policy, insurance providers are forced to compete fiercely for customers and must provide a variety of incentives. Thus, the policy buyer may be eligible for a discount on policy-related costs or other advantages and occasionally even receive excellent offers
  • As a result of the stiff competition, insurance companies are more aware of their customer's needs. They are constantly striving to improve their customer service standards.
  • Even though the Goods and Services Tax will raise the overall cost of a policy, whether general or life, it will increase competition among insurers. To attract buyers, insurers are likely to lower rates by cutting expenses related to policy issuance and other factors contributing to insurance's overall cost.

Claim for tax deduction

Taxpayers can claim tax breaks on premiums paid for life insurance and health insurance plans. This is permitted under Sections 80C and 80D of the Income Tax Act of 1961. You can now claim a further tax break if you pay GST on insurance.

This tax break is intended to convince people to purchase insurance, which is a wise investment under our current tax system. The taxpayer can claim tax benefits under this provision on the GST paid as part of the insurance policy or on the GST paid on the premiums. The amount which is paid as GST is subject to a particular investment.

The amount which is paid as GST is subject to a particular investment.

For example,

The annual premium of an insurance plan is ₹ 10,000, on which 18% GST amounts to ₹ 1,800

The total amount to be paid as a premium is (10,000+1180) = ₹ 11,800

The amount of ₹ 11,800 can be claimed for a tax reduction under Sec. 80C of the Income Tax Act, 1961.

Why Vakilsearch?

Our intellectual lawyers and chartered accountants will help you set up the GST registration for your insurance firm. We provide various services tailored to fit the needs of both corporations and individuals. Everyone should have access to high-quality legal representation.

We will take care of all the paperwork once you submit all the necessary documents. You don’t have to worry about the registration process. Our team will be in touch with you the entire time, and they will explain to you about GST on insurance and how it is calculated. Get in touch with Vakilsearch and complete your registration in three simple steps.

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