Is GST Applicable On ULIP?

Unit Linked Insurance Plan popularly known as ULIP, is a policy that provides dual between to the policyholders. The premium paid for the ULIP is divided into two parts. One portion of it is used to provide life coverage to the policyholder. The other larger portion of the premium is invested in equities or debt funds. The ULIP plans support wealth creation on a long-term basis. 

What is GST?

Before knowing the impact of GST, let us focus on what is GST.

The Goods and Service Tax popularly known as GST came into force on 1st July 2017. It is an indirect tax levied on the goods and services in India. Though the consumers pay for it, it is ultimately remitted to the government of India by the business holders supplying the products and services. The introduction of GST, simplified indirect taxation considerably as it replaced many other indirect taxes which are otherwise considered redundant and exploitive for the end consumer. 

Impact of GST On Life Insurance 

Earlier to GST, 15% service taxes were imposed on life insurance premiums. Taxes such as Basic Service Tax, Swachh Bharat Cess and Krishi Kalyan Cess were prevalent on life insurance. The implementation of GST in our country resulted in the rise of this tax amount to a standard 18%. This increase of 3% had a significant impact on the policyholders as the premium amount to be paid by them was increased. 

Although the implementation of GST increased the premium amounts it also helped the insurance sectors in other ways. The insurers were indulged in tough competition which led them to lower the prices by reducing the policy related expenses. As the GST rate was standardized, the public started to look for the other important aspects among the insurance companies to compare and choose the most suitable policy for them.

GST On ULIP 

GST is not the same for all life insurance products. The rates of GST vary from one policy to the other. 

The premium paid to the ULIPs is bifurcated into two parts. The first part is utilized to provide life insurance coverage of the policyholder and the other larger part is invested in the capital market. The point to notice here is that, GST is applicable only to that part of the premium which provides life insurance coverage. No GST is levied on the amount invested in shares or debt funds or a combination of both.

GST is charged at 18% for the Unit Linked Investment  Plans(ULIPs). This covers GST costs for  both premium payments and fund management charges. 

Conclusion 

The implementation of Goods and Service Tax ( GST) has increased the amount of premium to be paid. Despite this effect, it still provides other tax benefits to the end consumers. Under Section 80C of the Income Tax Act, 1961, the premium paid on ULIPs is exempted from the payment of tax. Under Section 80D of the Income Tax Act, 1961, the death benefit offered by this policy is also free of taxation.

Therefore wrapping it up, though the GST resulted in a rise in the premium amount, it is essential for every individual to have an insurance policy to secure the future of their family as well as to fulfill their long term goals. Policyholders should be cautious of the inclusion or exclusion of GST when they compare the prices of insurance premiums. 

It is advisable to opt for ULIPs, if a person is interested in investing in the capital market to earn good returns after a long term while securing his/ her life with insurance coverage. 

Also Read: 

Know the Difference Between Term Life Insurance and ULIPs

Know How ULIP Returns are Calculated    

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.