Goods and Service tax (GST) have come into effect from July 1st, 2017. This tax reform system has certainly influenced the whole economics of India and almost all the consumer products/services. It is believed to be the biggest tax reforms since India’s independence. Financial experts are stating that, this new system is going to have a positive impact on the Indian economy. GST is basically an indirect tax which has replaced the service tax and the VAT. Before GST, state and central government used to levy tax at each stage on their own rates. But the new system will only allow tax to be levied on the value added to the goods or services at each stage. After the introduction of the new system, the tax rates will increase from 15% to 18% over insurance GST. Therefore, increasing the service tax on premium of a new or renewing of the existing policy.
GST On Life Insurance
The factor which basically decides the premium amount is the type of insurance that, we choose to purchase. Either it is a Life insurance or it would be a General insurance. Further Life insurance is sub-divided into four categories i.e, a Term plan, Pension Plan, Unit linked investment plan (ULIPs) and Endowment plan. Individual plans have different service taxes levied on them. It is that the policyholder pays service tax based on the risk factor of the premium element. In a Term plan nominee gets the sum assured if the insured person dies during the policy term. There are no benefits if the policyholder stays alive after the maturity of the basic plan. Though there are few term plans with the return of premium (TROP) benefit. There is an increase in the service tax from 15% to 18% after the GST is implemented on July 2017. ULIPs and Endowment plans provide death maturity and coverage benefit whatever, comes first. And there is a hike in service tax for them as well from 3.75% to 4.5%. The same tax rates will be applied at the time of renewal of an individual’s policy. Hence, GST on insurance premium is varying from one product to another.
Life insurance given by government schemes that have exemption from GST:
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees;
- PradhanMantri Jan Dhan Yojana;
- Aam Aadmi Bima Yojana (AABY);
- Any insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.
- Janashree Bima Yojana (JBY);
- Life insurance provided by the Central Government to members of the Army, Navy and Air Force.
- Varishtha Pension Bima Yojana;
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)- LIC of India.
GST on Health Insurance
General insurance also provides a sum assured as compensation for the loss caused by man made or natural scenario. The General insurance is basically issued for healthcare, home, travel, automobiles etc. A Health Insurance is coverage for an insured person’s medical and surgical expenses. Depending upon the scenario either the insured person pays for the treatment first and later on it will be reimbursed from insurance company. Or the insurance company may directly reimburses the cost to the health care services availed by the insured. Medicare system is one of the worst hit by sector by inflation even, higher than inflation on food and other articles. For someone who is going to retire in the coming near future it’s going to be a daunting task to pay for their expensive medical bills. Taking health insurance plan disburses the medical bills towards the surgery and illness regardless of the actual medical expenses. However, Health insurance have got costlier after the GST roll out, like the family health plans, medical insurance, service tax on mediclaim premium for senior citizens. Once again the insurance premium attracts the service tax which is changed from 15% to 18% after the GST is released.
GST On Motor Vehicle
Motor insurance is mandatory by law and it is a legal requirement before driving your vehicle. Car insurance is divided into different categories i.e, comprehensive car insurance and another is third party car insurance. Comprehensive car insurance will cover any loss or damage caused to vehicle and its insured accessories as a result of natural or man-made calamities. The third party insurance policy is between the insurer and the insured. Someone Like the pedestrians, fare-paying or non-fare paying passengers in a vehicle. This also includes the driver, owner or the passenger. Car insurance or Automobile insurance have also received the same percentage of increase in the rate of service tax i.e, of 3% from 15% to 18%. If an individual who spends around INR 20,000 per annum for all the insurances which includes health insurance premium, life insurance and car insurance premium combined together. Then we could expect an amount of INR 600 additional that may be applicable on 3% hike based on GST roll out. The Banks will put forward the tax liability to their customers. This will eventually cause a significant increase in their administrative and compliance work. Exchange of service will take place between different branches of the same bank and also in between individually two separate banks. Thus, increase in paperwork and operating costs. However, it is in the benefit of the consumer as now they could claim input tax credit on the banking services paid on their business accounts. It is believed that, GST is a progressive measure. The new system will facilitate movement of goods across inter-state borders, improving efficiency and driving growth. This will benefit the e-commerce sector eventually. However, considering this is just the beginning of the stage, it is yet to be seen how efficient and profitable is the new service tax plan for the consumer & sellers in long run.