Intro:
The debate on lower GST on LIC premium has resurfaced after reports hinted that the Centre may consider rate reduction. With life insurance being a critical savings tool, taxpayers are keen to know if GST relief is finally on the table. Here’s the official word from the Finance Ministry and what it means for you.
What Triggered the Discussion?
- Multiple media reports suggested that the government was evaluating a lower GST slab for LIC and other life insurance policies.
- The concern: 18% GST on most life insurance premiums makes policies expensive and discourages financial protection.
- A senior LIC official was quoted in news reports stating that the government may consider reducing GST.
What the Finance Ministry Actually Said
- The Finance Ministry has denied any official proposal to cut GST on LIC premiums at present.
- PIB Fact Check flagged circulating reports as misleading, clarifying that no such decision has been made yet.
- There is no current agenda item in the upcoming GST Council meeting regarding a GST cut for life insurance.
Source: PIB Fact Check
Current GST Rates on Life Insurance Premiums
| Type of Policy | GST Rate | Taxable Amount |
|---|---|---|
| Term Insurance | 18% | Full premium amount |
| Endowment/Money-back Policies | 4.5% | First-year premium |
| Endowment/Money-back Policies | 2.25% | Renewal premiums |
| ULIPs (before Budget 2021) | 18% | On investment portion + mortality charges |
| ULIPs (post Budget 2021) | 18% | On full premium if total premium > ₹2.5L/year |
Note: All rates as per CBIC circulars and GST notifications.
Should GST Be Lowered on LIC Premiums?
Expert View:
CA firms and policy analysts argue that:
- High GST on insurance disincentivizes protection planning.
- A rate cut could improve insurance penetration, especially in Tier-2/3 cities.
- It aligns with government’s financial inclusion goals under Jan Suraksha schemes.
However, from a revenue perspective, reducing GST may impact collections, especially since life insurance is a growing segment.
Hidden Impact on Policyholders
- Many policyholders ignore the GST while calculating returns, especially in endowment plans.
- In long-term policies, GST adds a compounding cost burden.
- Even small reductions in GST can improve net yield on maturity.
Past Representations to GST Council
- LIC and private insurers have reportedly requested GST rationalisation several times since 2017.
- But GST Council hasn’t taken a definitive stance yet.
- The insurance sector continues to absorb or pass on GST, depending on policy type.
What Should You Do as a Policyholder?
- Don’t wait for a tax rate change to buy life cover—term insurance remains crucial.
- Evaluate net returns post-GST while choosing savings-cum-insurance policies.
- Keep track of GST Council updates via CBIC and PIB for any official notification.
Will Lower GST on LIC Premium Happen?
- As of now, no formal proposal exists.
- But industry voices and policy discussions may eventually push it to the GST Council agenda.
- Stay updated with official clarifications, not WhatsApp forwards.
FAQ: Lower GST on LIC Premium
Q1. Is GST on term insurance premium 18%?
Yes, term insurance attracts 18% GST on the full premium amount.
Q2. Are premiums under PMJJBY exempt from GST?
Yes, government-backed social security schemes like PMJJBY are GST-exempt.
Q3. Can GST paid on life insurance be claimed as input?
No, unless the policy is for business or employee benefit purposes.
Summary
Is the government reducing GST on LIC premiums? Finance Ministry says no such move is on record yet. Read what’s actually happening and how it impacts your policy.
Conclusion & CTA
While there’s no confirmed cut in GST on LIC premiums yet, the debate highlights a real cost concern. For personalised insurance tax planning or GST updates, consult Efiletax – your trusted compliance partner.