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How GST Affects Tax Savings

Apr 30, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

The Goods and Services Tax (GST) has turned India into a uniform market. It has replaced several taxes that applied to goods and services before 1 July 2017. The new tax regime has affected everything, from purchases of insurance to investments.

People buy insurance for two main reasons: to cover life risk and save on taxes. The premium paid on an insurance policy is subject to income tax deduction. Under Section 80C of the Income Tax Act, the tax-deduction limit is Rs 1.5 lakh in a financial year. But, the GST has affected your tax-related savings, too. The effects are as follows:

Change in premium

GST has slightly changed the insurance premium amount. In the old tax regime, insurance premium was subject to a service tax of 14%, Swachh Bharat cess of 0.5%, and Krishi Kalyan cess of 0.5%. The total tax amounted to 15%. But now, 18% GST applies to the premium amount. So, your insurance premium is likely to go up by 3%.

Input tax credit

The input tax credit (ITC) is a unique feature of GST which helps business entities to save tax. The business entity can be an individual or a corporation. The ITC allows a business entity to claim a deduction on the tax paid on the output.

Some businesses provide life and health insurance coverage to their employees. But, ITC cannot be claimed for life and health insurance policies. There is an exception to the rule. ITC is allowed if the law makes it mandatory for the business entity to insure the employee.


The annual ULIP premium is meant for two components: investment and life cover. There is no tax on the premium paid for the investment portion. In the old tax regime, the premium meant for life insurance invited 15% tax including service tax, Krishi Kalyan cess, and Swachh Bharat cess. Now, a GST rate of 18% applies to it. Thus, your total ULIP premium is bound to rise by a marginal amount.

Unit-Linked Insurance Plans (ULIPs) are unique insurance policies offering you investment cover as well as protection. Aegon Life offers the iMaximize ULIP plan that lets you choose from six unit-linked funds providing market-linked returns. The investment options are diversified from equity to debt in different proportions. You can select a fund according to your investment goal and switch among them over the investment period. You can start investing with the least amount of Rs 2,000 per month. You can claim a tax deduction on the yearly premium you pay.

Does it matter?

When you buy a life or a health insurance policy, you shouldn’t just focus on the premium amount. Instead, you must identify the need for the insurance cover and then buy the policy. The GST on an insurance plan may keep changing. Extreme competition may also force insurers to reduce the premium amount in future.

Before you buy an insurance policy, compare the plans different insurers are offering. Buy the one that meets your objectives. Choose a cover that suits your budget. Go through the policy terms and conditions thoroughly, as your goal is not only to save taxes but also protecting your family. If your focus is only on the premium amount, you may end up buying the wrong policy and leave your family financially exposed.

So, the GST will increase the premium you pay on tax-saving insurance policies. The good thing, though, is that a higher premium amount will be deductible from your income. This can increase your tax savings. Keep a tab on the income tax deduction limits for the insurance policy.

To know about AegonLife’s life insurance products like term insurance plans and other products like health insurance , visit our home page.

Advt. no.: IA/Apr 2018/3891


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