The Goods and Services Tax (GST) regime has placed the insurance sector under the 18 percent tax bracket as against the 15 percent tax that it was subjected to. However, contrary to popular perception, not all insurance policies will come under the 18 percent rate.
Only if you are buying a new insurance product that is term, motor health or a unit-linked insurance, the rate of 18 percent will be applicable. Earlier, the service tax was at 14 percent and with an addition of cess, the final tax rate came up to 15 percent. Now, there is a 3 percent rise in the rate.
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If it is a single premium policy or an endowment policy, the rate of tax will be 4.5 percent. In the case of a renewal premium, the tax charged will be 2.25 percent while if it is a single premium annuity plan it will be taxed at 1.8 percent.
There has been a differential rate of taxation in insurance based on the type of product, premium paying term and whether it is a life insurance or general insurance product. It has still not been disclosed whether small ticket policies or government-sponsored/promoted insurance will be exempted from tax under GST.
GST will be implemented from July 1. Hence, some of the insurance products bought after that date will bear a higher premium rate.
Insurance companies have already been engaged in social media campaigns and mailers to create awareness among customers about the higher premiums that they will have to pay from July 1 onwards. All existing customers have also been sensitized about the option to buy a new policy or pre pay premiums so that they do not attract a higher rate of tax.
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