In Modi 3.0, Union Road Transport and Highways Minister Nitin Gadkari wrote a letter on July 28 to Union Finance Minister Nirmala Sitharaman demanding the removal of GST on Medical Insurance on life and medical insurance. He has described this tax as ‘like imposing a tax on the uncertainties of life’. GST on insurance increases the amount of your premium and you have to spend more. Let’s know its full calculation…
So will life and medical insurance become cheaper?
At present, the Goods and Service Tax (GST) imposed by the government on life and medical insurance is 18 percent. There has been a long standing demand for its removal and now the LIC Employees Union of Nagpur Region has requested its removal in a memorandum submitted to Union Road and Transport Minister Nitin Gadkari, taking cognizance of which Nitin Gadkari wrote a letter to Finance Minister Nirmala Sitharaman demanding the removal of GST. If this demand is accepted then life and medical insurance can become cheaper.
GST is levied as a financial service
The Goods and Services Tax (GST) implemented across the country on 1 July 2017 has brought about a major change in the tax system of India and since then, a single tax is imposed in place of different taxes across the country. GST is an indirect tax, which is imposed on household products, clothing, consumer goods, electronics, transportation, real estate as well as services. Insurance is also considered a financial service and is included in this category. GST is levied at the same rate of 18 percent on both term insurance and medical insurance.
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How does the premium cost increase?
Talking about term and medical insurance, GST is applicable on the total premium amount. Understand it as an example, if you buy a medical insurance policy and its coverage is Rs 5 lakh, then the premium cost is around Rs 11,000 per year. Now if we calculate the GST levied on it at the rate of 18 percent [11000/(100 + 18%)] That is, on every premium you have to pay an additional Rs 1980 as GST and your premium becomes Rs 12,980. In this way, after the implementation of GST, policy buyers purchasing health insurance have to pay a higher premium amount.
Nitin Gadkari has demanded the Finance Minister to remove GST on insurance through a memorandum. In it, the Employees Union has pleaded that if a person buys an insurance policy to provide security to his family, then tax should not be levied on the insurance premium.
15% tax before GST
Let us tell you, before the implementation of GST, 15% tax was levied on insurance, but after the implementation of GST, 18% is being charged from 1 July 2017. This increase of 3% in the tax rate has had a direct impact on the premium of insurance policies, due to which the premium prices have increased.
This is how you can avail tax benefits
Let us tell you here that after taking a life insurance policy, you can definitely take advantage of tax benefits. You can claim tax deduction under Section 80C and 80D of the Income Tax Act, 1961. Taxpayers are given the facility to claim tax deduction for their total premium amount paid to the insurer under specific insurance plans. That is, you can avail deduction of up to Rs 1.5 lakh on all the insurance premiums you have paid in a year.