Can you claim tax benefit for tax paid on insurance premium?
Section 80C and 80D of Income-tax Act entitles specified taxpayers to claim deductions for the entire amount paid to the insurance company for specified insurance schemes.
Normally, the total amount that a person pays to buy/ keep in force a life or medical insurance policy also includes the GST paid on the premium. The GST is calculated as a percentage of the premium and can often be a substantial amount. So, it becomes important for you to understand how much GST is applicable on life and non-life insurance premiums, and whether the GST paid with the basic insurance premium qualifies for getting tax benefit.
Rajat Mohan, Partner, AMRG & Associates says, "Section 80C and Section 80D of Income tax Act entitles specified taxpayers to claim deduction for the entire amount paid to the insurance company for specified insurance schemes. GST being an indirect tax is charged/recovered by the supplier of services from the recipient with actual value of service. Thereby, a collective reading of income tax and GST laws would echo that entire amount paid to the insurance company including applicable GST would be allowed as a deduction."
GST paid on health insurance
GST of 18 per cent is charged on the premium paid for health insurance, as per the prevailing regulations. Tax benefit can be claimed under section 80D of the Income Tax Act for the payment made for health insurance policies.
For instance, if you purchase a health insurance policy with a sum insured of Rs 10 lakh at the age of 30 years from Bajaj Allianz General Insurance company, you would have to pay a basic premium of Rs 7,843 and GST of Rs 1,412 (18 percent GST is applied on basic premium). The overall premium will add up to Rs 9,255. Similarly, if someone purchases the same policy at the age of 50, then s/he will have to pay a basic premium of Rs 17,782 and GST of Rs 3,200. The overall premium will come to Rs 20,983.
Thus, a substantial amount of GST, which is applicable to the basic premiums, in both the cases, can be claimed for getting tax saving deduction benefit under section 80D. Therefore, in each case, you can claim the total premium of Rs 9,255 or Rs 20,983 under section 80D. This tax saving deduction amount is subjected to an investment limit available under the particular section.
(The calculation of premium for the above example is taken from Bajaj Allianz General Insurance's website)
Amarpal Chadha, Tax Partner and India Mobility Leader, EY, says that policyholder understands that it is contractually provided (in the policy document/renewal intimations etc.) that GST would be recovered in addition to the premium. Accordingly, without the payment of GST, the obligation of the policyholder would not be discharged, i.e., the policy will not be active. "As an investor, you should know that the income-tax law is widely worded so as to provide a deduction for any sums paid to effect or to keep in force a contract of insurance on the life of a specified person. Accordingly, a component of GST as an element of the premium is eligible for deduction subject to an overall cap of the Section. Also, principally the logic for section 80D would remain same as for section 80C. Without the payment of GST, the obligation of the assessee would not be discharged," he added.
|Type of product||GST applied on||GST applied (%)||Total premium* can be claimed for tax benefit (under section)|
|Health Insurance||Basic insurance premium||18||80D|
|Term Insurance||Basic insurance premium||18||80C|
|ULIPs||Charges like Fund Management Charges and Mortality Charges||18||80C|
|Traditional plans like endowment policy, money back policy, whole-life policies and pension products||
*Total premium equals to basic premium plus GST.
GST paid on life insurance
Vinay Taluja, National Head - Solutions, Bajaj Capital said that GST varies depending upon the product you have had purchased. For say, term insurance have 18 percent GST on basic premium and traditional endowment insurance has 4.5 percent GST for the first year and from the second year it is 2.25 percent. For regular premium of unit-linked insurance plans (Ulips), GST of 18 percent is levied on several kind of charges but not applied on whole premium. "Furthermore, if you take any riders on health insurance, you have to pay 18 percent GST," he added.
In case of investment-cum-insurance products like Ulips, the investment portion is excluded from the gross premium while calculating GST. Thus, GST of 18 percent 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.
S. Vasudevan, Partner, Lakshmikumaran & Sridharan Attorneys said that as per section 80C of the income-tax Act, any sum paid to effect or keep in force a contract of life insurance is allowed as deduction. The term 'sum paid' is wide enough to include the annuity, charges levied by the insurer and the taxes that have been levied on the quantum of annuity paid. Thus, the GST paid on the instalment can be claimed as deduction under 80C.
For instance, if someone, who is a non-smoker, purchases TATA AIA Life Insurance's Sampoorna Raksha policy, a term insurance plan with a policy term of 30 years, with sum assured of Rs 2 crore at an age of 30 years, s/he would have to pay a basic premium of Rs 15,000 and a GST of Rs 2,700. Thus, the total premium which will add up to Rs 17,700 can be claimed under section 80C. This tax saving deduction amount is subject to investment limit available under the particular section.
(The calculation of premium for the above example is taken from TATA AIA Life insurance website)
Sachin Vasudeva, a Delhi-based practising-chartered accountant, says "The phrase 'any sums paid' as used in section 80C of the Income-tax Act, 1961, is wide enough to cover the charges/taxes levied by the insurance company. It is now contractually provided in the policy document/ renewal intimation that GST would be recovered in addition to the premium. Accordingly, GST paid becomes a part of any sums paid to effect or keep in force a contract of life insurance and should be allowed as a deduction along with the premium."
What to do if GST is not reflecting in the premium receipt?
The GST paid on the insurance premium can be claimed by the employee as a deduction from income, along with the premium amount, for the purpose of tax-saving. The tax payer should keep premium payment related documents showing the premium and GST paid as proof.
Saraswathi Kasturirangan, Partner, Deloitte India said that the wording used under Section 80C and Section 80D of Income Tax Act is "any sums paid or deposited….to effect or keep in force an insurance on the life of persons specified…." Accordingly, the deduction will not be restricted to the premium amount alone, it would include the GST amount as well. "Also, at times it may happen that when you view your premium receipt, you may not find the GST amount separately. In such a situation, the employee can claim the GST amount in their tax return and they should keep the supporting documents (which is the annual statement of policy premium from the insurer) with them in case if authorities ask for the same," she said.