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Can You Claim Tax Benefit for Tax Paid on Insurance Premium?

Jan 24, 2020 | 6 months ago | Read Time: 3 minutes | By iKnowledge Team
Term Insurance Tax Benefits

The Income Tax department allows for tax benefit on insurance premiums of life insurance & health insurance plans. It is to encourage more people to invest in an insurance policy. While you might be aware of insurance premium tax benefit allowed for these under Section 80C and 80D, have you ever wondered if the Goods and Services Tax (GST) that you pay on their premium is a liability or advantage? Let us find out.

Does GST qualify for tax exemption?

GST is paid on the premium of your insurance policy and is calculated as a percentage of it, the rate of calculation depends on the policy. As per Sections 80C and 80D, a taxpayer is entitled to tax benefits under insurance policies on the entire amount paid towards the premium of the specific plan. GST is an indirect tax that needs to be paid by a person who has availed services from a supplier along with the actual value of the service. So, both Income Tax laws and GST rules mandate that tax benefit on insurance premiums as a whole, including the GST paid as per the policy, be allowed for exemption. Let us now understand how GST applies to life insurance and non-life insurance policies and how to save tax on them.

GST on Life insurance premium

The rate of GST varies depending on the plan purchased. A rate of 18% is charged on the basic premium for a term insurance policy while for a traditional endowment insurance plan, you need to pay GST of 4.5% in the first year and 2.25% in the second. In case of a Unit linked insurance plan (ULIP), GST of 18% does not apply on the premium itself but various other charges included as a part of policy maintenance, such as fund management and mortality charges.

Section 80C of the Income Tax Act implies that any sum paid to keep a life insurance policy in effect, can be claimed for deduction. This comprises not only the charges that the insurance company applies, but also the taxes on the total annuity paid, which brings GST paid every year under the ambit of tax benefits under insurance policies as per 80C. Suppose Mr A pays an annual premium of ₹15,000 to which a GST of ₹2700 is applied. His total premium comes to ₹17,700 and can be claimed as per Section 80C as an insurance premium tax benefit.

GST on Health insurance premium

All health insurance policies have a standard GST rate of 18% that applies to the premiums paid towards their maintenance, as per the current regulations. As a taxpayer, you can claim insurance premium tax benefit as per Section 80D for the instalments paid by you towards keeping your health policy afloat. For example: a person who has purchased critical illness insurance will not only enjoy tax benefit on insurance premium paid but also the amount chargeable after applying GST.

Let us say that Mr B pays a premium of ₹10,000 for his health policy. GST at the rate of 18% applies on the premium paid and so his total premium comes to ₹10,000 plus ₹1800, that is ₹11,800, that will be allowed as a tax deduction under Section 80D. The amount charged under GST qualifies for exemption subject to the limit available for investment under the Section. The logic is the same as it applies to Section 80C above. Principally, without the payment of GST, the taxpayer is not relieved of his or her duties, and the policy would cease to be active. Since the IT Act mentions that sums paid to keep a policy in effect account for tax benefits under insurance policies, it automatically means that GST is also included.

Employees can claim the GST paid by them on the insurance premium of their life insurance policy or health insurance policy, to reduce their taxable income, and hence save tax. Remember to keep the documents related to premium payment, reflecting both GST and premium paid towards your insurance policy as a valid proof.

If the premium receipt does not indicate the GST amount individually, you can still submit the annual statement of premium paid from the insurance provider and submit it to your employer. Even if your company or firm does not allow the amount charged under GST for tax-saving purposes, you can still claim it while filing Income Tax return.

A surefire way of benefiting from tax deductions is to go for term insurance. With Aegon Life’s term plan, you can avail deductions not only under Section 80C, but under Section 10(10D) and 80D, too! Apart from tax deductions, you can take advantage of several other benefits from purchasing the iTerm plan, including coverage up to 100 years of age and the flexibility to choose from 3 plan variants and several riders. You can take the first step toward tax saving by opting or the iTerm plan.


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