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1 What is GST?

The Goods and Services Tax (GST) is an integrated tax, merging most of the existing indirect taxes such as Service tax, VAT etc. into a single system of taxation. GST works on the concept of “One Nation One Tax”.

2 What triggers GST?

The ‘supply’ of goods and/or services to any person or entity will trigger GST.

3 What does ‘supply’ mean?

Supply refers to the sale, transfer, barter, exchange, licence, rental, lease or disposal of goods and services.

4 What are the types of GST?

The types of GST are:

  • CGST: “Central Goods & Services Tax” - Levied on supply of all goods and/ or services within a particular State, by the Central Government.
  • SGST: “State Goods and Services Tax” - Levied on supply of all goods and/or services within a particular State, by the respective State Government.
  • IGST: “Integrated Goods and Services Tax” - Levied on all interstate supplies of goods and/or services, by the Central Government.

5 What is the rate at which GST is charged on Life Insurance premium?

Description

GST Rate

Taxable Value

Effective GST Rate#

Term Plans/ Health Plans/Riders

18%

100%

18%

ULIP Charges/Other Charges

18%

100%

18%

Conventional Policies

 

-First Year/Single Premiums

18%

25%

4.50%

-Renewal Premiums

18%

12.50%

2.25%

Single Premium Annuity Plans

18%

10%

1.80%

# Subject to changes in tax laws

Note: GST = Premium amount/ Charges applicable* effective tax rate

6 Is GST applicable on premium of all Life insurance policies?

Yes, GST is applicable on all premiums of Life insurance policies, except for the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Micro Insurance scheme which are exempt as per notification issued by Central Government.

7 Can policy holder paying Life Insurance premium take credit of the GST paid on the premium?

As per section 17(5) of the CGST Act, premium paid on Life Insurance/ Heath Insurance services is in a negative list for claiming input tax credit. Hence as per the law, a policy holder is not allowed to claim input tax credit with respect to GST paid on the premium amount.

As per our view the policy holder should not claim input tax credit with respect to GST paid on the premium amount. However the customer is requested to take his own view on the claim of input tax credit.

8 What are the tax benefits applicable to Life Insurance Policy?

A. Under deductions under 80C of Income Tax Act, 1961

Annual Premium paid during the financial year towards a life insurance policy is allowed as deduction from the total income, subject to a maximum amount of
₹ 1,50,000/- This deduction is available to Individuals and HUFs only. The aggregate deduction available under section 80C, section 80CCC and section 80CCD (1) of the Income Tax Act is restricted to
₹ 1,50,000/-

In case where the annual premium on a life insurance policy is exceeding 10% of the actual capital sum assured, the deduction should be available only to the extent of 10% of such premium amount (which is further restricted to
₹ 1,50,000 as stated in the above paragraph).

B. Under Section 80D of the Income Tax Act, 1961

Premiums paid by an individual from income chargeable to tax under a health insurance plan/ rider are eligible for deduction under section 80D of the Income-tax Act, 1961 (‘the Act’).

Deduction under section 80D is available for premiums paid for self, spouse, dependent children and parents (of self only). The maximum limit of deduction is provided in the table below:

Sr. No.

Particulars

Maximum amount of deduction under section 80D

1

Premium paid for Self and Spouse (both less than 60 years) and dependent children

₹ 25,000/-

2

Premium paid for Parents* (less than 60 years) of an individual

₹ 25,000/-

3

Premium paid for Self and Spouse (60 years and above) and dependent children

₹ 50,000/-

4

Premium paid for Parents* (60 years and above) of self

₹ 50,000/-


* Whether dependant or not

C. Under Section 10(10D) of the Income Tax Act, 1961

Exemption of maturity proceeds/death benefits of the policy under Section 10(10D) of the Income Tax Act, 1961.

As per section 10(10D) any sum received under a life insurance policy (other than sum received under section 80DD(3) or section 80DDA(3) or under a Keyman Insurance Policy) will be exempt, provided the annual premium payable under any of the years during the term of the policy does not exceed 10% of the actual capital sum assured.

Death benefits are tax-free other than those which are specifically excluded under section 10(10D) of the Income tax Act, 1961.

9 Whether premium paid towards pension policy is eligible for deduction u/s 80C of the Income tax Act, 1961?

As per section 80CCC(1) of the Income-tax Act, 1961, the amount paid/deposited during the year by an individual out of his/her income chargeable to tax to effect or to keep in force a contract for any annuity plan for receiving pension from a fund approved under section 10(23AAB) of the Income-tax Act, 1961, should be allowed as deduction from his/her total income subject to aggregate limit of ₹ 1,50,000/- and subject to the other conditions stated therein.

10 Is the Nominee of the policy entitled for any tax benefit against death benefit received by him ?

The death benefit received by the Nominee under a life insurance policy is exempt from tax as per section 10(10D) of the Income Tax Act, 1961 other than those which are specifically excluded under section 10(10D) of the Income tax Act, 1961.

11 Deduction under section 80C is available to which individuals?

A: Deduction under section 80C of the Income-tax Act, 1961 (‘the Act’), is available only in following cases:

  • Premiums paid by husband on life of wife
  • Premiums paid by wife on life of husband
  • Premiums paid by husband/ wife on life of their children of any age (including married daughters)


NOTE: Above is subject to the amounts being paid during the previous financial year by the individuals (husband/ wife as the case maybe) and the aggregate limit of ₹ 1,50,000/- and other conditions under section 80C of the Act would apply.

12 Can HUF claim deduction under section 80C of the Income tax Act, 1961?

Deduction under section 80C of the Income-tax Act, 1961 (‘the Act’), is available for the premium paid by HUF on the life of member thereof.

NOTE: Above is subject to the amounts being paid during the previous financial year by the HUF and the aggregate limit of ₹ 1,50,000/- and other conditions under section 80C of the Act would apply.

13 If premiums paid under a life insurance policy exceed 10% of the actual capital sum assured, what is the amount of deduction available?

As per section 80C(3) and 80C(3A) of the Income-tax Act, 1961, premiums paid only to the extent of 20% (for policies issued on or before March 31, 2012) or 10% (for policies issued on or after April 1, 2012) as the case maybe, of the actual capital sum assured should be available for deduction under section 80C(2) of the Act.

For example, if actual capital sum assured under a life insurance policy issued on April 30, 2012, is ₹ 5,00,000/- and annual premium paid/payable under this policy is ₹ 60,000/-, then deduction under section 80C(2) of the Act will be available only to the extent of ₹ 50,000/- (i.e. 10% X Actual capital sum assured of ₹ 5,00,000/-).

The above is subject to other conditions specified under section 80C of the Act.

14 What is Advance Premium? Can I claim tax benefit on advance premium?

Payment of premium before the premium due date is known as advance premium. You can claim tax benefit on the advance premium paid in the year of payment.

NOTE: The overall limit prescribed for section 80C, 80CCC and 80CCD(1) under the Income Tax Act, 1961, is
₹ 1,50,000/-.

15 Will there be any tax on the benefits paid out of an insurance plan?

Section 194 DA has been made effective from 1st October 2014 under Income Tax Act, 1961. As per the current Income tax law, tax is required to be deducted from the payments made to residents of any sum under a life insurance policy including the sum allocated by way of bonus, other than the amount exempt under section 10 (10D) of the Income Tax Act, 1961 subject to the conditions and limits specified therein. Tax will be deducted at source @5% (prior to September 1, 2019 1% on payout amount), on amount of income comprised there in. As per the Income Tax Act, 1961, the rate of deduction of tax at source of 5% (earlier 1%) is applicable only in instances where valid PAN has been communicated to the deduct or before the payment is made under a life insurance policy. 
Section 194DA of the Income Tax Act, 1961, stipulates that no tax deduction shall be made where the aggregate amount of such payments to the policyholder during the financial year is less than ₹ 1,00,000/-.

16 At what rate tax will be deducted u/s 194DA of the Income if the policy holder/payee is a specified person u/s 206AB of the Income tax Act, 1961?

Section 206AB is applicable w.e.f 1st July 2021.If the policyholder/payee is a “specified person” as per section 206AB of the Income-tax Act, 1961, the applicable tds rate u/s 194DA read with section 206AB shall be 10% (double of 5%) under Income tax Act 1961.

As per section 206AB of the Income-tax Act, 1961, “Specified person” means a person who has not filed the returns of income for prior two years and the aggregate of tax deducted at source and tax collected at source is 
₹ 50,000 or more in each of the prior two years.  

17 At what rate tax will be deducted/s 194DA of the Income tax Act, 1961, if the policy holder/payee does not submit PAN or a valid PAN?

In case where tax is required to be deducted u/s 194DA of the Income tax Act, 1961 and  where valid PAN has not been communicated to the deductor before the payment is made under a life insurance policy, the tax will be deducted @ 20% instead of 5% on amount of income comprised under a policy.

In instances where PAN has not been communicated to the deductor before the payment is made under a life insurance policy, the rate of tax deductible is 20%.

In view of the above, please submit a copy of your PAN Card at any HDFC Life branch or mail a scanned and self attested copy at [email protected] if not done already.

18 At what rate tax will be deducted u/s 194DA of the Income tax Act, 1961 if the policy holder/payee does not have PAN Aadhar Linked?

With effect from  October 1 , 2021 (or such effective date as announced by the Government from time to time)*, it is mandatory for all resident individual customers to link Permanent Account Number (PAN) with the Aadhaar number in accordance with Sec 139AA of the Income-tax Act, 1961. If PAN is not linked to Aadhaar, the PAN will become inoperative and accordingly tax shall be deducted @ 20% instead of 5% u/s 194DA of the Income tax Act, 1961.

In view of the above, please link your PAN with Aadhaar and submit a copy of your PAN Card at any HDFC Life branch or mail a scanned and self attested copy at [email protected] if not done already.

*As per press release dated June 25, 2021 by Government of India the last date for linkage of PAN with Aadhar is extended to September 30, 2021. If this date of September 30, 2021 is further extended by the Government then such extended date shall apply.

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Disclaimer

The aforestated views are based on the current Income-tax law. Tax laws are subject to change. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

ARN: EU/07/21/24471