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Impact of GST on Various Pension Plans

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Impact of GST on Pension Plans
November 07, 2016

The Goods and Services Tax (GST) became applicable from 1st July 2017. It is the biggest change in India's indirect tax structure since independence. GST is a single tax that replaces all other indirect taxes, such as value added tax (VAT), excise, customs duty, and others. 
The new tax regime will simplify the structure and make compliance easier. Furthermore, it will eliminate the cascading effect of multiple state and central taxes that were levied along the value chain. A single tax regime will also help reduce tax evasion and corruption.
Like several individuals, you may include Pension Plans when you plan for your retirement. You may choose among different types of plans to ensure financial stability after you retire. Here are six types of retirement plans.

  1. Deferred annuity

    This plan allows you to accumulate a corpus during the policy term. At the end of the policy term, you start receiving regular pension. You may regularly invest in such a plan or make a lump sum single payment as per your convenience and requirements.

  2. Immediate annuity

    You need to invest a lump sum in this type of a pension plan. The annuity is paid immediately based on your invested amount.Under an immediate annuity plan, your nominees receive the money after your demise.

  3. With or without cover

    A with cover plan includes life cover, which is paid to your nominees after your demise. The without cover plans offer no life coverage and pays the accumulated corpus to your nominees on your death. Generally, deferred annuity plans are with cover and immediate annuity schemes are without cover options.

  4. Annuity certain

    This plan pays you an annuity for a specific time period. In case you pass away before the end of this period, the balance annuity is paid to your nominees.

  5. Guaranteed period annuity

    An annuity is paid for a certain number of years irrespective of whether you survive this duration or not. You may choose a term from 5, 10, 15, or 20 years as per your personal needs.

  6. Life annuity

    You receive the annuity amount for life under this type of retirement plan. If you include your spouse in the plan, the annuity is paid to your spouse after your death.

Impact of GST on pension plan premium

Currently, insurers levy service tax on the insurance premium at different rates. These are determined by the type of policy and the insurance component of the plan. The service tax will now be replaced by GST on the insurance premium and related expenses. Additional cess like Krishi Kalyan Cess (KKC) and Swatch Bharat Cess (SBC) will be eliminated after the implementation of GST.
Single premium annuity plans levied 1.5% service tax including SBC and KKC. The new GST rate applicable will now be 1.8%, which means the amount will increase by 0.3%. The modified tax rates will also be applicable on delayed premium amount that is paid as a lump sum amount to revive lapsed policies. The GST rate will be charged on the revival amount as well as the interest component.
Retirement planning is crucial to ensure you enjoy financial freedom during your golden years. With proper planning and including the right types of financial products, you will be able to live worry free after you retire.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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