GST on Insurance: Everything You Need to Know

GST is a comprehensive indirect tax charged on the supply of goods and services throughout the country, aimed at creating a unified market and simplifying the tax regime. This article explores the impact of GST on insurance, covering aspects such as insurance policies, premiums, claims, input credit, and vehicle insurance.

Understanding the Impact of GST on Insurance

While understanding the impact on insurance we have to acknowledge some things. GST has brought about various changes in the insurance sector, affecting policyholders, insurers, and intermediaries. The inclusion of insurance under GST reforms has led to a more streamlined and transparent taxation system. It has standardized tax rates and eliminated the cascading effect of multiple taxes that previously burdened policyholders. The impact of GST in various sectors is as follows:

GST on Insurance Policies

GST on insurance policies is considered as services, and the tax rate applicable depends on the type of insurance policy. Health and life insurance policies fall under the 18% GST tax slab, while general insurance policies attract a GST rate of 12%. This means that policyholders need to pay GST on premiums while availing insurance coverage.

GST on Life Insurance Premium

In the case of life insurance policies, customers are required to pay GST on the life insurance premium amount. The GST component is calculated as a percentage of the total premium paid. Policyholders need to understand the tax implications to accurately calculate the total amount they need to pay.

GST on Insurance Claims

GST on insurance claims has also an impact. While the claim settlement amount is not subject to GST, policyholders need to pay GST on any additional services availed during the claim settlement process. For example, if policyholders opt for a cashless claim settlement process and choose to upgrade their vehicle at the same time, GST will be levied on the additional cost incurred.

GST Input Credit on Insurance Premium Paid for Employees

Companies often provide group insurance or medical coverage to their employees. Under GST, companies can claim input tax credits for the premiums paid for such insurance policies. Input credit can be availed for the GST paid on the premium amount, reducing the overall tax liability of the organization. However, certain conditions and requirements need to be met to claim input credit.

GST on Insurance of Vehicles

Under the previous tax system, various individual components such as motor insurance, third-party insurance, and comprehensive insurance were taxed separately. With the implementation of GST, these components are now under a unified tax rate structure. GST on insurance of vehicles/motors is currently set at 18%, irrespective of the type of coverage.

Also, read: Life Insurance Tax Benefits: Life Insurance Tax Benefit in Assessment Year 2024-25

Tabular data showing the Impact of GST on Insurance 

End Note

The introduction of GST has had a significant impact on the insurance industry, reshaping various aspects of policies, premiums, claims, and vehicle insurance. Policyholders should be aware of the implications of GST on insurance, particularly regarding the tax rates on different types of policies. Companies offering group insurance to employees should also stay updated on the regulations for claiming input tax credits. Although GST has introduced certain complexities, in the long run, it aims to simplify the taxation system and provide a more transparent and unified market for insurance services.

In case of any query regarding GST on Insurance, feel free to connect with our legal experts at Legal Window at 72407-51000.