GST impact: Postal Life Insurance premium
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:
1. The gross premium reduced by the amount allocated for investment, or savings on behalf of the policy holder.
2. In case of single premium annuity policies, ten per cent of single premium charged from the policy holder.
3. In all other cases, 25 per cent of the premium in the first year and 12.5 cent of the premium in subsequent years.
GST on First Year Premium:
If the premium of an endowment plan is ₹. 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on ₹. 25, so, ₹. 4.5 will be the GST amount.
| Premium | ₹. 100/- |
| Risk portion of Premium | 25% of 100 = ₹. 25/- |
| GST on Risk portion | ₹. 25 x 18% = ₹. 4.50 |
| GST on total premium collected | 4.5% of ₹. 100 i.e. ₹. 4.50 |
GST on Renewal Year Premium:
If the premium of an endowment plan is ₹. 100, the GST of 18 percent will be applicable on the 12.5 percent of the premium i.e. on ₹. 12.5, so, ₹. 2.25 will be the GST amount.
| Premium | ₹. 100/- |
| Risk portion of Premium | 12.5% of 100 = ₹. 12.5/- |
| GST on Risk portion | ₹. 12.5 x 18% = ₹. 2.25 |
| GST on total premium collected | 2.25% of ₹. 100 i.e. ₹. 2.25 |
Courtesy: Economic Times Online
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