The Life Insurance Corporation of India commonly referred as LIC has clearly mentioned that the impact of GST on LIC products is that it has replaced Service Tax and the charge will be slightly high as compared to the previous Service Taxes.
An insurance policy is made of two parts – investment and risk protection, GST is levied only on the risk factor part and not the investment part and therefore term plans will be influenced the most under GST. Not only LIC Policies but also insurance premiums of all types of health plans, vehicle insurance policies, endowment plans, etc have increased under GST.
The Term Insurance Plans, Health Insurance Plans and ULIP charges are hiked from 15% Service Tax to 18% GST. NB premium (including Single Premium) of Life Insurance and Pension plans and the First year premium of Annuity plans used to attract 3.75% service tax, which is changed to 4.5% GST now.
The Renewal premiums earlier carried 1.875% Service Tax, now they will attach 2.25% GST. Lastly, for Single Premium of Annuity Plans earlier the Service Tax was 1.5% which is now replaced by 1.8% GST.
Now all these changes will have a moderate impact on everyone however it is the middle class that will be most impacted by it as most of their investments are term plans of LIC than any other mode of investment.
To the relief of customers, there are a few LIC plans that continue to be exempted under GST as they were exempted from Service Tax before July 1st 2017:
(1) Janashree Bima Yojana (JBY); or
(2) Aam Aadmi Bima Yojana (AABY);
(3) Life micro-insurance product as approved by IRDA having a maximum amount of cover of Rs.50,000
(4) Varishtha Pension Bima Yojana;
(5) Pradhan Mantri Jeevan Jyoti Bima Yojana;
(6) Pradhan Mantri Jan Dhan Yojana;
(7) Pradhan Mantri Vaya Vandan Yojana;
(8) Any other insurance scheme of the State Governments as recommended by the GST Council
