Post-pandemic, the importance of Health insurance and the insurance industry in general has sky-rocketed. People have now started to see ‘Insurance’ as an essential commodity. When a consumer buys a life insurance cover or a Health Insurance policy, there are some additional costs associated with the purchase. These costs are generally the taxes that are levied and fall under the ambit of the GST. Article explained overall impact of GST on insurance sector in India.
In this short article, we will look at the GST slabs applicable to the insurance purchases and also will look at an overall picture of impact of GST on Insurance sector in Indian context.
Impact of GST on Insurance sector – Life Insurance Products
When a consumer is set to buy a Life Insurance, he comes across three major variants of the product:
- Term Insurance Plans
- Unit Linked Insurance Plans
- Endowment Plans
Latest update in insurance sector
These instruments are taxed differently under GST. Latest till December 2022, following are the GST tax slabs that were levied on the purchases of these policies:
Type of Policy | GST Rate |
|---|---|
Term Insurance Plan | 18% |
Unit Linked Insurance Plan | 18% (on costs of premium and fund management) |
Endowment Plan | 4.5% (on cost of premiums paid in the first year) AND 2.5% (on premiums paid after the first year) |
Caveat: Life Insurance schemes offered by the Government are EXEMPTED from the GST.
GST Input Tax Credit on Life Insurance Purchases:
If the policy is purchased by the end-user, then he has no option to claim GST Input Tax Credit paid on the premiums of the Insurance Policy.
However, if an employer has purchased an insurance policy for his employees, then there is an option available to claim Input Tax Credit under GST with the employer.
GST on Car Insurance
Premium amounts of the car insurance have gone up after levying of the GST. However, it is mandatory for every car owner to have an insurance for the vehicle or atleast a third-party insurance securing the damages to the vehicle in case of negative externalities.
Following are the latest vehicle insurance GST rate applicable on the purchases of vehicle insurance :
Type of Insurance | Applicable On | GST Rate |
|---|---|---|
Vehicle Insurance (Car insurance and bike insurance included) | Premium payable | 18% |
Insurance for Rider | Premium payable for rider | 18% |
GST on General Insurance
What does General Insurance include?
General insurance includes insurances like theft insurance, fire insurance, health insurance, personal damage insurances, personal accident insurances, etc.
GST applicable on the premium of the General insurance is 18% (As of December 2022).
GST on Health Insurance
GST applicable on the sale or renewal of the health insurance is 18% as of December 2022.
Can you claim GST Input Tax Credit on Insurance Purchases?
GST applicable on the sale or renewal of the health insurance is 18% as of December 2022.
Businesses have always been under confusion when it comes to claiming Input Tax Credit under GST on the purchases of the insurance policies for the businesses.
In this section, we have explained the purchases on which you can claim ITC and the ones on which no ITC availing option is available.
In which cases ITC claim is available?
- GST Input Tax Credit is available on factory/building insurance.
- ITC is available on Marine Insurance. (Case reference – Alstom T & D vs Commissioner, LTU, Chennai (2016)).
- Input Credit is available on burglary insurance (Case reference – JSW Steel Ltd. Vs Commissioner of Central Excise, Raigad.)
- GST Input Tax Credit is available in the Plant and Machinery and the Laptop Insurance. (Case reference – Hindustan Zinc vs Commissioner of Central Excise, Jaipur).
Read also: ITC on Job work | Time limit to avail Input Tax Credit
Impact of GST on Insurance Sector – Important FAQs
Can I claim ITC on Health Insurance?
As per Section 17(5)(b) of the CGST Act, an organization cannot claim GST Input Tax Credit on Health Insurance. However, businesses are allowed to claim ITC on health insurance purchased for the employees if it is mandatory to cover their employees under the health insurance plan.
Is ITC available on the GST paid on the Life Insurance Premiums?
An employer who has purchased Life Insurance for its employees as employee benefits, then the employer is eligible to claim GST Input Tax Credit on the GST amount paid on this purchase.
Are the GST rates on the health insurance premiums different across India?
No. The GST rate of 18% is fixed on the health insurance premiums in all the states of India.
Is GST Input Tax Credit available on the insurance policy for building/ staff insurance or standard risk policy?
- For insurance building : Yes, taxpayers can avail GST Input Tax Credit on the insurance for building. Section 17(5) of the CGST Act of 2017 allows the taxpayer to do so as the credit for building insurance is NOT blocked.
- For staff insurance : Input Tax Credit shall NOT be available on the life insurance and the health insurances unless it is mandated by the government to the employers to provide such obligatory services to the employees. If such is the case then the employer can claim the GST Input Tax Credit on the insurance. (Reference Section 17 (5) (b) (iii) of the CGST Act of 2017).
Is ITC available on the insurance premium paid on the stocks or capital assets?
Yes, Input Tax Credit under GST will be available on the GST paid on the insurance premium paid for the loss of stocks or capital assets. This is because the stocks will be treated as the business expense or purpose.
Claiming Input Tax Credit, the right way!
Claiming ITC for small businesses can be a tedious job as the reconciliation can be complicated and there is a chance of claiming ineligible ITC which may lead to GST notices from the GST department.
In such cases, GST Reconciliation tool like GSTHero, takes care of all the reconciliation needs which comes in a complete package.
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You get five essential Reconciliation reports that will be highly beneficial for you to claim 100% ITC and help you identify the defaulting suppliers.
- GSTR1 Vs. GSTR-3B
- GSTR-2A Vs. GSTR-3B
- GSTR1 Vs. Book of Accounts
- GSTR-2A Vs. Book of Accounts
- GSTR1 Vs. E-way Bill