As we all know that implementation of GST would undoubtedly impact one’s personal finances especially when it comes to financial services. From the present rate of 15 percent, the GST on banking, insurance, and investments such as real estate, mutual funds will see a hike of 3 percent as the GST will now be 18% of them.
Let’s see how each of them gets impacted.
GST and Insurance
Primarily, there are three major kinds of life insurance products – Term insurance plans, Ulips and Endowments (including money back). The applicability of service tax (in the current format) on their premium is not similar in all three of them.
The premium paid in life insurance policies represents two portions – risk coverage and savings. The service tax is only on the risk portion of the premium and not on savings portion.
As per the GST rules, the value of services (on which GST is to be imposed) in relation to life insurance business shall be:
(a) The gross premium reduced by the amount allocated for investment, or savings on behalf of the policyholder.
(b) In case of single premium annuity policies, 10% of the single premium charged from the policyholder.
(c) In all other cases, 25% of the premium in the first year and 12.5% of the premium in subsequent years. So, if the premium of an endowment plan is Rs 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on Rs 25, so, Rs 4.5 will be the GST amount.
(d) If the entire premium paid by the policyholder is only towards the risk cover in life insurance such as in term insurance plans, the GST of 18 percent will be on the entire premium.
Therefore, the immediate impact of GST would be the higher outgo (premium plus GST) in term and endowment plans, due to the increase in rate of tax on insurance following implementation of the GST.
Source: Economics Times