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Tagged: Impact of GST
- Miloni ShahModeratorDecember 25, 2016 at 2:06 PMPost count: 4Topics: 1
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The proposed GST rate is either 18% or 22%, which is on the higher side as compared to the current service tax rate of 15% (14% basic service tax plus 0.5% Swachh Bharat cess and 0.5% Krishi Kalyan cess).
The proposed GST rates will increase the insurance premium payout by 3% or 7% considering the proposed GST Tax rate of either 18% or 22%.
Life Insurance Premiums
The term plan premium is anticipated to rise by 3% or 7%. This will put a huge impact on the affordability of the basic life insurance plans in the country. Term plans are considered to be the most affordable plans as these plans are the pure protection plans with no investment component attached to such plans.
Currently, Endowment and ULIP premiums are charged service tax at a differential rate, 3.75 % for the first premium and 1.88% for the premiums paid second year onwards. With the implementation of GST rate, the premiums are anticipated to rise to 4.50% (if the GST rate is fixed at 18%) or 5.50% (if the GST rate is fixed at 22%) for the first year. For the subsequent premiums, the GST rate applicable will be 2.25% or 2.75%.
Non-Life Insurance Premiums
Health insurance premium, motor insurance premium, home insurance premium will also see an anticipated rise to 18% or 22% from the current level of service tax of 15%.
- GST rate will certainly be more than the current service tax rate, which will certainly increase the cost of insurance.
- Continuation of concessional or differential rates on Endowment & ULIP’s is still to be decided by the GST council, which will define the attractiveness of such insurance plans.
- Health, motor and other non-life insurance premiums are likely to rise as well. Since non-life policies are short term contracts and need to be renewed annually, there will be a need to analyze and compare the policies offering the maximum benefit with the lowest cost, post implementation of GST.
- The exact amount or percentage of the rise in insurance premium will be known once, the final GST rate is fixed.
Type of policy After GST implementation Current rate Pure risk insurance/term insurance 18% 15% ULIPs 18% 15% Annuity: single premium 1.8% 1.5% Motor insurance 18% 15% Endowment policies (1st year) 4.5% 3.75% Endowment policies (2nd year onwards) 2.25% 1.88% Health insurance 18% 15%
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