When we purchase anything in India, whether it is clothes, gadgets, or even a coffee cup, there’s something that we always notice being added to the cost: GST, or Goods and Services Tax. But do you know that GST is applicable to your insurance policies too? Yes, you heard that correctly. There is GST on term insurance, and it influences the amount you have to pay as a premium each year.
Few individuals know that the ultimate premium of a term insurance policy contains GST. Although it may look like a lot at first, it might be a tiny difference later on. Knowing how GST works will allow you to better plan your budget and make good decisions when purchasing or renewing your term plan. We will discuss this in the simplest terms possible.
What Is Term Insurance?
Before discussing GST, let’s briefly review what term insurance entails.
Term insurance is a kind of life insurance that gives financial support to your dependents if you happen to pass away during the policy duration. You pay a specific premium monthly or annually, and your family gets a lump sum of money (the sum assured) when you’re no longer there. It’s one of the cheapest means to ensure your loved ones remain safe even when you are away to provide assistance to them.
How Does GST Operate on Term Insurance?
GST is levied on nearly all goods and services in India, and that includes financial products such as insurance. The GST on term insurance is 18% at the moment. This is to say that when you purchase or renew a term insurance policy, the premium you pay will also encompass this 18% GST. Let us consider a small example so that this can be understood clearly:
Assume your basic premium is ₹10,000 annually.
- GST (18%) = ₹1,800
- Your total premium thus becomes ₹11,800.
This amount is retained by the insurance company and later paid to the government as tax.
Now, the GST rate won’t alter your benefits or coverage—it only impacts the amount you pay overall. Your base premium is retained by the insurance company while the GST share is remitted to the government.
Why Does GST Apply to Term Insurance?
The government levies GST on different goods and services to generate funds for spending by the government. Insurance, being a service that companies provide to safeguard individuals financially, comes under the GST rules. The idea is to standardise the tax system across all lines so that there is transparency and uniformity. But this also raises the cost of purchasing insurance marginally due to the imposition of the additional tax.
How to Know the Exact Impact of GST on Your Premium
Sometimes, it’s hard to figure out how much GST affects your total premium, especially when you’re comparing multiple insurance plans. This is where a term insurance premium calculator becomes your best friend.
A term insurance premium calculator is an online facility that is free of cost, through which you can calculate exactly how much you will have to pay for a term plan, along with GST and other charges. Let us understand how it works simply.
How Does a Term Insurance Premium Calculator Work?
It is very easy to use a term insurance premium calculator. You have to fill up some basic information like:
- Your age
- Gender
- Annual income
- Smoking habit (smoker or non-smoker)
- The amount of coverage you desire
- The duration of the policy (years)
After you input these figures, the calculator instantly calculates your premium value. It even adds the GST component in the overall amount, so you have an idea of what you’re actually paying yearly. Take the example of a base premium of ₹15,000. The calculator then displays ₹17,700 as your overall premium after including 18% GST. This way, there’s no ambiguity or shock later.
Why You Should Apply a Premium Calculator Before Purchase
There are lots of valid reasons for applying a premium calculator before you purchase a term plan:
- It’s time-saving. You don’t have to make calls to agents or go to offices. Simply feed in your details and have instant results.
- It assists in the comparison of plans. You can compare premiums of various insurance companies and choose the one which suits your pocket.
- It displays the total cost. Since GST is already added to the final number, you’ll have a clear idea of the actual amount you’ll pay annually.
- It aids planning. You can vary coverage, tenure, and add-ons to understand how each variation impacts your overall cost.
In brief, a calculator allows you to make wiser, quicker, and more lucid decisions.
Does GST Affect Everyone Equally?
Not exactly. GST is charged at the same rate (18%) to all, but the amount varies based on your premium size.
For instance:
- If your premium is ₹8,000, GST will be ₹1,440.
- If your premium is ₹25,000, GST will be ₹4,500.
Therefore, individuals who have larger coverage amounts or add-on riders (such as accidental or critical illness coverage) will pay more GST since their base premiums are higher.
Can You Save on GST or Avail Any Tax Relief?
Though you cannot escape paying GST for term insurance, there is some good news. You can still save money in the form of tax relief under Section 80C of the Income Tax Act. The amount you pay as a premium (including GST) can be deducted up to ₹1.5 lakh in a year. That is, even after paying GST, you are eligible for tax relief on the full premium amount, which offsets the cost somewhat. Suppose you pay ₹11,800, including ₹1,800 GST. You can claim a deduction of ₹11,800, not ₹10,000. This small detail can make a big difference when you’re calculating your tax savings.
How GST Has Changed Insurance Over the Years
Before GST came into effect in 2017, different taxes like service tax and cesses were applied to insurance premiums. The rates were confusing and varied from one policy to another.
GST simplified this system by combining all taxes into one uniform rate 18%. This made the process more transparent for customers and easier for companies to manage.
While the rate may seem higher than before, it brought clarity and consistency to the insurance industry.
Smart Tips to Manage the Impact of GST
Here are some simple ways to handle the small rise in cost due to GST:
- Buy early: The premium is less when you are young, hence GST will also be less.
- Pay annually: Paying once a year rather than monthly may lower additional fees or processing charges.
- Compare before buying: Compare online to discover the best quote with GST.
- Claim tax deductions: Don’t miss out on availing your Section 80C benefit annually.
- Select long-term plans: They commit your premium for years, shielding you from future price or tax fluctuations.
Conclusion
GST on term insurance could be just another tax, but knowing it makes you better planned. It’s a minor expense for the financial security and reassurance that a term plan brings. By calculating the term insurance premium using a calculator, you can view your actual cost of your policy, including GST, before purchase. This keeps you clear, confident, and in control of your money. Ultimately, insurance is not a cost, it’s a cover for your family’s future. And once you know how each rupee, including GST, contributes to that plan, you make wiser financial decisions that last a lifetime.
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