Is GST paid on insurance premium eligible for tax benefit?

Source: livemint

As the season for submitting proof of investments in tax-saving products nears, your employer might soon ask to furnish them. Tax benefit on premiums paid for life and health insurance plans encourages taxpayers to invest in an insurance policy. While most people are aware that the premiums paid for life as well as health insurance offer tax benefits under Section 80C and 80D, respectively, many are unknown about claiming the deduction on the GST paid on these premiums.

If you have paid the premium for a life or health policy before, you may know that you also need to pay Goods and Services Tax (GST), thereby increasing the total premium. Depending on the type of policy you have, GST is charged on different parts of the premium. This changes the applicable GST rate on different policies.

Tax benefit for GST paid on insurance premiums

In the case of health insurance policies, you need to pay GST at the rate of 18%. For instance, if your premium is ₹20,000, GST at 18% will come to ₹3,600, and you will be paying a total premium of ₹23,600. This will lead to the almost complete exhaustion of your deduction limit of ₹25,000 available under Section 80D which is applicable for premiums paid for health policy. The policy can be for yourself and your family, including spouse and two dependent children.

Similarly, for life insurance, GST is levied on different parts of the premium, depending on the type of policy you bought. In case of life insurance, you can claim a deduction against GST paid on the premium, given that it is within the overall limit of ₹1.5 lakh available under Section 80C.

Similar to health insurance, in a term plan, GST at the rate of 18% is levied on the entire premium of the policy. Let’s say, a non-smoker 28-year-old male pays a premium of ₹10,000 for an assured sum of ₹1 crore over 20 years. The GST levied on this amount would be ₹1,800 and the total premium paid – ₹11,800 – will be eligible for a tax deduction. Therefore, when filling the details of the premiums paid for life and health insurance policies in the investment proof form provided by your employer, ensure that you mention the total premium paid, including GST.