Understanding GST's effect on insurance in India
What's the story
Since its introduction in July 2017, the Goods and Services Tax (GST) has significantly reshaped various sectors, including the insurance industry. This article explores the nuances of how GST influences your insurance policies in India. It covers life, health, and vehicle insurance, providing essential insights for making informed decisions about your insurance requirements. Understanding these changes is vital for policyholders and potential buyers alike.
About
The basics of GST on insurance
Before GST, a 15% service tax was applied to insurance premiums. After GST's implementation, this rate increased to 18%. This change means that on an annual insurance premium of ₹10,000, where the tax was previously ₹1,500, it now amounts to ₹1,800. Therefore, a higher portion of your premium is allocated towards tax in the current GST regime.
Policy variations
Impact on different types of insurance
The effect of GST on insurance policies varies. Life insurance divides into term plans and investment schemes like endowment and ULIPs. Term plans have experienced a minor cost increase due to the higher tax rate. Investment plans see a more complex impact, as GST applies differently to the risk coverage and investment components, making the financial implications nuanced.
Premium dynamics
How premium payments are affected
For policyholders paying regular premiums for their life or health insurance policies after GST implementation, it means shelling out more from their pockets. Specifically focusing on health and vehicle insurances - both comprehensive and third-party liability policies have become costlier due to an increased rate from 15% to 18%. This increment directly impacts your annual budget allocated toward these insurances.
Cost management
Tips for managing increased costs
One way to manage this increase is by opting for annual premium payments instead of monthly or quarterly options. Insurers often offer discounts for lump-sum payments, which can offset some of the increased costs due to GST. Additionally, reviewing your policy features periodically can help identify any unnecessary covers that you might be paying for, thus optimizing your coverage according to actual needs.