Unit Linked Insurance Plan, also known as ULIP, is a type of life insurance policy that offers dual benefits. With ULIP, you get life cover and an opportunity to invest at the same time.
The premium you pay for ULIP is split into two shares. One share of your premium goes towards providing you with a life cover. The other share goes towards investments. You can choose which funds to invest in and accumulate wealth on a long-term basis to realise your dreams and goals.
What is GST?
Before we get to know why the GST is applied on ULIP and what is its impact, let’s first understand what GST is. The Goods and Services Tax (GST) was introduced by the Government of India on 1st July 2017.
It is a type of indirect tax imposed on goods and services in the nation. Although it is paid by the patrons, it is finally sent to the government of India by the entrepreneurs and businessmen who provide goods and services.
But with the implementation of the GST, indirect taxation is now easier and simplified. It has also helped in replacing several indirect taxes, which were redundant and exploitive for the customers.
What is the effect of GST on Life Insurance policies?
Before the implementation of GST, service taxes of 15% were levied on life insurance premiums. Other prominent taxes like Basic Service Tax, Krishi Kalyan Cess, and Swachh Bharat Cess were levied on life insurance premiums as well.
When the GST was implemented in India, it increased the overall tax amount to 18%. This sudden rise of 3% certainly had a major impact on the insured individuals as the overall premium amount for their life insurance policies was increased.
But even if GST increased the premium amounts, it also aided the insurance companies in several ways. Earlier, insurance companies were in a fight to reduce costs by reducing policy-related expenditures. As the GST rate was standard, people started focusing more on the important features of the policies to make a wise decision.
How does GST impact ULIP?
You must note that GST varies for all life insurance products. GST also differs from one life insurance policy to another.
The premium you pay towards your ULIP plan is divided into two parts. One part of your premium payment goes towards life insurance coverage, and the other part goes towards investments in the capital market.
Note that the GST is only applicable on the premium, which goes towards life insurance coverage. No GST whatsoever is applicable to the premium amount that is invested in the capital market. 18% GST is levied on the ULIP policies.
Even if the implementation of Goods and Services Tax (GST) has raised the premium amount, it provides several tax benefits for the consumers. The premium amount you pay on ULIPs is applicable for tax deduction under Section 80C of the Income Tax Act of 1961. Also, the death benefit offered by ULIPs is tax free.
Click here to know more about Kotak Life ULIP Plans:https://www.kotaklife.com/online-plans/ulip-plan