Under the GST Act 2017, life insurance business services are primarily treated as intangible services and subject to GST Act 2017. However, the specific taxation details depend on factors like the type of service and the policyholder’s annual turnover. Here’s a breakdown:

Taxable Services:

• Issuing and servicing life insurance policies:This includes activities like underwriting, risk assessment, premium collection, claim processing, and policy administration.
• Investment management of policyholder funds:If the life insurance policy includes an investment component, the related investment management services are taxable GST Act 2017.
• Brokerage and agency services:Services provided by insurance brokers and agents in relation to life insurance policies are taxable.
• Other incidental services:Any other service directly related to the life insurance business, such as providing customer support or risk management advice, would likely be taxable.

GST Rates:

• Most life insurance services (excluding reinsurance) are taxed at a rate of 18%.
• However, specific exemptions and lower ratesapply to certain types of life insurance and related services:
  • Exemptions:
    • Policies issued by the Insurance Regulatory and Development Authority (IRDAI) itself.
    • Annuity plans under the National Pension Scheme (NPS).
    • Life insurance schemes provided by the government, like Pradhan Mantri Jeevan Jyoti Bima Yojana, Aam Aadmi Bima Yojana, etc.
    • Micro-insurance policies with a maximum cover of Rs. 2 lakhs GST Act 2017.
    • Other state-government insurance schemes approved by the GST Council.
  • Lower Rates:
    • Endowment and pension policies:
      • 75% GST on the first year’s premium.
      • 88% GST on subsequent years’ premiums.
    • Annuity plans with a single premium:
      • 5% – 1.8% GST depending on the annuity type.

Turnover Threshold:

Businesses providing life insurance services are required to register under GST Act 2017 if their annual turnover exceeds the prescribed threshold, currently set at Rs. 40 lakhs in most states.

EXAMPLE

South india  

• Kerala:In Kerala, a major focus is on providing life insurance for families who depend on agriculture and fishing for income. Many insurers offer policies with guaranteed income benefits and accidental death benefits.
• Tamil Nadu:In Tamil Nadu, there is a growing demand for child education plans and retirement plans. Insurers are also offering micro-insurance products for low-income families.
• Karnataka:In Karnataka, the IT sector is booming GST Act 2017, and there is a demand for life insurance products that cater to the specific needs of tech professionals. Some insurers offer policies with coverage for critical illnesses and cybercrime.

North India:

• Delhi:In Delhi, there is a high demand for term life insurance and whole life insurance. Insurers are also offering unit-linked insurance plans (ULIPs) that provide investment options.
• Uttar Pradesh:In Uttar Pradesh, the focus is on providing affordable life insurance products for rural populations. Many insurers offer micro-insurance GST Act 2017.products and group insurance schemes.
• Haryana:In Haryana, there is a growing demand for life insurance products that offer guaranteed returns. Some insurers offer endowment plans and money-back plans.

West India:

• Maharashtra:In Maharashtra, the insurance market is very competitive, and there is a wide variety of life insurance products available. Insurers offer term plans, whole life plans, ULIPs, and retirement plans.
• Gujarat:In Gujarat, there is a strong entrepreneurial culture, and many insurers offer life insurance products that cater to the needs of small business owners GST Act 2017. Some insurers offer key person insurance and business interruption insurance.
• Rajasthan:In Rajasthan, the focus is on providing life insurance products for farmers and rural populations. Many insurers offer weather-indexed insurance products and crop insurance products.

East India:

• West Bengal:In West Bengal, the demand for life insurance is growing, and many insurers are offering new and innovative products. Some insurers offer health insurance riders and critical illness riders on their life insurance plans.
• Odisha:In Odisha, the focus is on providing affordable life insurance products for low-income families. Many insurers offer micro-insurance products and group insurance schemes.
• Jharkhand:In Jharkhand, the insurance market is still developing, but there is a growing demand for life insurance products. Some insurers offer term plans, whole life plans, and ULIPs GST Act 2017.

These are just a few examples, and the specific life insurance business services offered in each state will vary depending on the needs of the population and the competitive landscape.

FAQ QUESTION

1. Are life insurance services taxable under GST Act 2017?

No, life insurance services themselves are exempt from GST. This includes services like issuing life insurance policies, collecting premiums, processing claims, and providing policyholder service.

2. What about services related to life insurance?

Some services related to life insurance may be taxable under GST Act 2017. Here are some examples:

• Surrender charges levied by an insurance company:These charges are considered a penalty and not part of the life insurance service, hence they are taxable at 18% GST.
• Service charges for handling third-party products:If a life insurance company charges a fee for handling non-life insurance products for another company, that service would be taxable at 18% GST.
• Reimbursement of expenses incurred by policyholders:If a policyholder incurs expenses related to claiming their insurance benefit, like travel or medical bills, and the insurance company reimburses them, the reimbursement is not taxable. However, any charges levied by the company on top of the actual expenses might be taxable.

3. How is the value of taxable services determined?

The value of taxable services provided by a life insurance company is determined in a specific way:

• For services provided to registered persons(businesses with a turnover exceeding the prescribed limit), the value is the gross premium charged minus the amount allocated for investment or savings on behalf of the policyholder, if such amount is intimated to the policyholder at the time of service.
• For services provided to unregistered persons, the value is the full gross premium charged.

4. Do life insurance companies need to register under GST Act 2017?

Life insurance companies are not required to register under GST Act 2017as long as their primary business is providing exempt life insurance services. However, if they provide any taxable services like those mentioned above, they need to register and comply with the GST requirements.

5. Can life insurance companies claim Input Tax Credit (ITC)?

Life insurance companies can claim ITC on the GST paid on goods and services they purchase, such as office supplies, computer software, or marketing expenses. However, they cannot claim ITC on the GST paid on inputs used for providing exempt life insurance services.

CASE  LAWS

1. GST Advance Rulings Database:

• This online database, maintained by the GST Council, features rulings issued by various state and central authorities regarding the interpretation of the GST Act 2017. You can search the database using keywords like “life insurance,” “business services,” and “GST classification” to see if any rulings are relevant to your specific case.

2. Official websites of government departments:

• Websites of the Central Board of Indirect Taxes & Customs (CBIC) and state GST departments sometimes publish summaries of important case laws or rulings, including those related to the financial sector GST Act 2017. This could be a starting point for further research.

3. Legal portals and databases:

• Online legal portals like Taxscan, VakilNo1, and Bar & Bench provide access to legal judgments and orders, including potentially relevant ones related to insurance services and GST. Their search features can be used to explore existing case law.

4. Professional consultations:

• Consulting with a qualified tax professional specializing in GST Act 2017 and insurance regulations is highly recommended. They can provide accurate and personalized advice based on your specific situation and interpret relevant case laws in the context of your query.

5. Additional resources:

• Circulars and clarifications issued by the CBIC might offer insights into specific aspects of the GST Act 2017 related to insurance services. This information can be accessed on the CBIC website.
• Professional bodies within the insurance industry or associations for tax professionals might have published guidance or resources on the GST implications of life insurance business services.