Tax on term life insurance may be exempted by GST Council: What will change for you

GST Council may exempt term life insurance from GST, formal decision expected on September 9.

The GST Council is likely to exempt term life insurance policies from the goods and services tax (GST). Although, it may continue to tax insurance policies with an investment component. The decision is likely to be formalised in the GST Council meeting on September 9, a senior unnamed government official told Moneycontrol.

Term life insurance exemption from GST could result in ₹200 crore annual revenue loss but make it more affordable.

“Life insurance with an investment portion will not be exempted. There is no sense in exempting that. It is basically an investment. We have to exempt the uncertainties of life, not investments,” the official said as per the outlet.

The revenue loss from the exemption of term life insurance from GST is estimated to be around ₹200 crore annually, he said but the decision will make term life insurance more affordable in India, thus making it lucrative.

“This would be a welcome step. It would make insurance affordable and have the potential for increased volume for insurance companies. The insurance penetration in India is still relatively low compared to other developed countries, and this would certainly help in bridging the gap,” Sandeep Sehgal, partner-tax at AKM Global, a tax and consulting firm, said as per the report.

What is term life insurance?

Term life insurance is a pure protection plan that offers financial security to the beneficiaries in case of the policyholder’s death during the term of the policy. The insurance provides coverage for a specified period ranging from 10 to 30 years.

What are the premiums on term life insurance?

Premiums for term life insurance are generally lower as it offers a death benefit without any savings or investment component. In case a policyholder outlives the term, there is no payout unless the policy includes a return of premium rider.