‘Insurance’, as defined by the Cambridge English Dictionary, is “An agreement in which you pay a company money and then pay your costs if you have an accident, injury, etc”. The insurance sector is widespread in India with 65 companies, 24 in life insurance, and 31 in non-life insurance, and nearly 25 lakh agents working for them.
GST on Life Insurance & Health Insurance
There are 3 types of life insurance :
- Term insurance plans- basic life insurance policies
- ULIPs– insurance and investment under a single integrated plan
- Endowments (including money-back)- life insurance policies that pay a lump sum on maturity/death or a fixed sum every month (sort of like a pension)
GST Rate for Insurance
The rate of GST for insurance services, similar to that of banking services, will be 18%, a 3% increase from that of the previous service tax regime.
Place of Supply
In the insurance business, the place of supply related to its services shall be:
- If the recipient of services is a registered person, the location of such person.
- For non-registered recipients, the location of the recipient of services on the records of the supplier of services.
- If the insured(the recipient of services) has multiple registrations in various states, then the place of supply will be determined based on the address for which the policy is issued by the particular company.
- In a situation where an organization takes a group insurance policy of any kind, and the organization has multiple branches throughout the country, the head office where insurance has been applied to all of its employees, will be the place of supply.
Invoicing
An insurance invoice must contain details like the description of service, value, tax payable etc. The time limit for issue of GST invoices is 45 days from the date of supply. Upon receiving the payment of such invoices, the registered supplier must issue a receipt voucher or relevant documents which is akin to a receipt. In the case of cancellation of an insurance policy, the individual shall issue proper debit or credit notes followed by the filing of returns, on or before the September of the particular year of cancellation.
Reverse Charge
Reverse charge is a mechanism where the receiver of goods is liable to pay GST, and not the supplier. In the case of insurance, the principal company which avails the services of the insurance agent provides the payment for services issued by an insurance agent.
Input Service Distributor
The concept of “Input Service Distributors” was created for proper utilization of credits from the head office in case of multiple branches, as a measure to simplify the supply chain, resulting in the reduction of costs. An insurance company can also be the beneficiary of these services, as it might have multiple branches. In cases of centrally contracted services, the services are procured by the head office and then transferred to the rest of its branches. This is the methodology commonly followed by most insurance companies.
FAQs
Q1. Is There a Tax on Life Insurance Premiums?
Yes, life insurance premiums are subject to 18% GST, and proceeds may be taxed if conditions under Section 10(10D)
Q2. Is GST applicable on vehicle insurance?
Yes, a GST of 18% is applicable on vehicle insurance, increasing the overall cost of premiums.
Q3.How does GST affect the cost of insurance?
GST increases the cost of insurance by 18%, adding 18% to premiums for most policies and raising overall insurance expenses for consumers.
Q4. Is there a GST on travel insurance premiums?
Yes, GST is applicable on travel insurance premiums in India at a standard rate of 18%.
Q5. What are the Advantages of GST for Insurance Buyers?
The advantages of GST for insurance buyers include a streamlined taxation system, uniform tax treatment across policies, and increased input tax credits.
Q6.Is it Possible to Deduct the Claims of a Life Insurance Policy from Your GST?
No, it is not possible to deduct the claims of a life insurance policy from your GST. Under Section 80C of the Income Tax Act, you can only claim deductions on the life insurance premiums paid, including GST
