Is it possible to claim tax benefits for tax paid on insurance premium?

Under Section 80C and Section 80D of the Income Tax Act, the premium paid for life and medical insurance policies can be used to claim tax benefits. Now the question is, “Can the policyholders claim similar tax benefits for Goods and Service Tax (GST)?”

Before opting for any insurance policy, one must be aware and understand how much GST is applicable and whether the GST paid qualifies for getting tax benefits.

Moreover, one must take into account that, "Section 80C and Section 80D of Income Tax Act entitles specified taxpayers to claim deduction for the whole amount paid to the insurer for specified insurance schemes. GST (being an indirect tax) is charged or recovered by the supplier of services from the recipient with the actual value of service. Hence, a collective reading of income tax and GST laws would echo the paid amount to the insurer including applicable GST (that would be allowed as a deduction).”

For Health Insurance

As per the prevailing regulations, about 18% GST is charged on the premium paid for Health Insurance. Under Section 80D of the Income Tax Act, the tax benefit can be claimed for the payment made for health insurance policies.

For example, if Rajesh who is 30-years old and has opted for a Health Insurance Plan (Medi-classic Individual Insurance Policy) by Star Health Insurance with a sum insured of Rs. 10 lakh, he would have to pay a basic premium of around Rs.7800 along with GST of Rs.1,404. So the overall premium would go up to Rs.9,204.

Whereas, if his 48-years old friend Shankar has to opt for the same plan with the same sum insured he would have to pay Rs. 13600 as the basic premium with additional GST of Rs.2,448, so the overall premium would go around to Rs. 16,048.

In both the above cases, a substantial amount of GST (applicable to the basic premium) can be claimed for getting tax saving deduction benefit under Section 80D. Hence, both Rajesh and Shankar can claim the total premium amount of Rs. 9,204 and Rs. 16,048 respectively under Section 80D.

Note: The tax saving deduction amount is subjected to an investment limit available under the particular section.

For Life Insurance

The GST varies from person-to-person depending upon the product one has opted for. For instance, the term insurance comes with 18% GST on basic premium whereas the traditional endowment insurance plan comes with 4.5% GST for the first year and 2.25% from the second year.

In ULIPs, while calculating GST the investment portion is excluded from the gross premium. Hence, 18% GST is not applied on the whole premium, but it is levied on the various charges that an investor pays like fund management charges and mortality charges.

Brief about different types of products and the GST % rates applied on each of them:

Health Insurance - 18% (applied on basic insurance premium)

Term Insurance - 18% (applied on basic insurance premium)

ULIPs - 18% (charges like mortality charges and fund management charges)

Traditional plan like endowment plan, Money back policy, whole life policies and pension products – 4.5% (1st year insurance premium) and 2.25% (2nd year insurance premium)

What to do if GST is not reflecting in the premium receipt?

For the purpose of tax-saving, the GST paid on the insurance premium can be claimed by the employee as a deduction from income, along with the premium amount. The taxpayer should keep premium payment-related documents showing the premium and GST paid as proof.

There could be cases wherein the employee may not find the GST amount separately in his or her premium receipt. In such a situation, then he or she can claim the GST amount in their tax return. In addition to this, they should keep the supporting documents (which are the annual statement of policy premium from the insurer) with them in case if authorities ask for the same.

Rakesh Goyal
Director, Probus Insurance