Insurance Services Under GST

‘Insurance’, as defined by the Cambridge English Dictionary, is “An agreement within which you pay an organization money then pay your costs if you’ve got an accident, injury, etc.”. The insurance sector is widespread in India with 65 companies, 24 in insurance, 31 in non-life insurance, and nearly 25 lakh agents working for them. this text could be a part of a series of our articles on various services, and their facets under the GST regime.

GST Rate For Insurance

The rate of GST for insurance services, almost like that of banking services, is 18%, the third increase from that of the previous service tax regime.

Place Of Supply

In the insurance business, the place of supply associated with its services shall be:

  • If the recipient of services could be a registered person, the situation of such person.
  • For non-registered recipients, the placement of the recipient of services on the records of the supplier of services.
  • If the insured(the recipient of services) has multiple registrations in various states, then the place of supply is determined supported by the address that the policy is issued by the actual company.
  • In a situation where a company takes a bunch policy of any kind, and therefore the organization has multiple branches throughout the country, the pinnacle office where insurance has been applied to all or any of its employees is going to be the place of supply.

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Invoicing

An insurance invoice must contain details just like the description of service, value, tax payable, etc. The deadline for the issue of GST invoices is 45 days from the date of supply. Upon receiving the payment of such invoices, the registered supplier must issue a receipt voucher or relevant documents which are loved a receipt. within the case of cancellation of insurance, the individual shall issue proper debit or credit notes followed by the filing of returns, on or before the September of the actual year of cancellation.

Reverse Charge

The reverse charge could be a mechanism where the receiver of products is susceptible to pay GST, and not the supplier. within the case of insurance, the principal company which avails the services of the general agent provides the payment for services issued by a broker.

Input Service Distributor

The concept of “Input Service Distributors” was created for correct utilization of credits from the top office just in case of multiple branches, as a measure to simplify the availability chain, leading to the reduction of costs. An insurance firm may also be the beneficiary of those services because it might need multiple branches. In cases of centrally contracted services, the services are procured by the pinnacle office and so transferred to the remainder of its branches. this is often the methodology commonly followed by most insurance companies.

Impact of GST On Insurance

Insurance Services Under GST

With a hike in post-GST rates to 18% from the present 15%, both the insurance sector and banking sector are poised to urge dearer after July 1. The impact of GST on insurance and banking will increase the premiums, especially for families that procure health, life, and automobile insurance.

GST & Insurance

Life Insurance &  Health insurance

There are 3 sorts of insurance :

  • Term insurance plans- basic insurance policies
  • ULIPs– insurance and investment under one integrated plan
  • Endowments (including money-back)- insurance policies that pay a payment on maturity/death or a hard and fast sum each month (sort of a pension)

Service tax applicable on each type is different – for instance, ICICI Prudential insurance applies service tax at the subsequent rates:

CategoryService Tax With SBC And KKCAfter GST
Term insurance premium15%18%
ULIP charges15%18%
Health insurance premium15%18%

All these rates are replaced by 18% which can end in an increase in premiums. the worth of supply of services for life assurance business shall be:

The value of supply of services regarding life assurance business shall be:

  1. a) The gross premium minus the quantity allocated for investment, or savings on behalf of the policyholder if such amount is informed to the policyholder.

For example,

ParticularsUnder Service TaxUnder GST
Gross Premium10001000
Investment Portion600600
Life Insurance portion400400
Service tax @ 15% on 40060—–
GST @18% on 400—–72
  1. b) Single premium annuity policies- 10% of the premium
  2. c) In all other circumstances, the premium payable is increased by 25% for the first year and 12.5 percent for the second year and onwards.
Gross Premium p.a.1000
1st Year 
25% of the value250
GST @18% on 25062.50
2nd year 
12.5% of the value125
GST @18% on 12522.50
  1. d) If the complete premium is forever insurance, GST @18% will apply to the complete premium

Impact

Both existing and new policyholders will face a rise within the premium amounts thanks to increases in rates. For insurers, the rise in taxes is going to be passed on to the consumers. The insurers expect higher compliance and administrative costs thanks to the increased number of GST returns and also the effect of taxability of inter-branch services.

General Insurance

General insurance includes insurance, marine insurance, automobile insurance, theft insurance, etc. The GST rate will be 18% on general insurance.

Impact

For policyholders, the overall premium will rise as tax has increased from 15 to 18%. Corporate policyholders, who have taken general insurance, can enjoy input reduction on the GST paid on their policies (it was available to them even under service tax). Life and health insurers won’t have input reduction because it isn’t available forever and health insurances (as they’re for private purposes). Even corporate policyholders with group life and insurance for their employees won’t enjoy any input decrease.

GST: Government-sponsored life insurance is excluded from the GST:

  • Janashree Bima Yojana (JBY)
  • Aam Aadmi Bima Yojana (AABY)
  • Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having a maximum cover of Rs. 50,000
  • Varishtha Pension BimaYojana
  • Pradhan Mantri Jeevan Jyoti BimaYojana
  • Pradhan Mantri Jan Dhan Yojana
  • Pradhan Mantri Vaya Vandan Yojana
  • Any other insurance scheme of the regime could also be notified by the govt. of India on the advice of GSTC.
  • Life insurance is provided by the Central Government to members of the military, Navy and Air Force.