Is GST Applicable on ULIPs?

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Millennials opt for Unit Linked Insurance Plans (ULIPs) to balance insurance coverage with financial goals. These dual-benefit products offer the opportunity to invest in ULIP funds of their choice, enabling savings for future goals like buying a home or retirement while providing life insurance benefits for their families. However, before one buys a plan, it is essential to know that all ULIP plans attract GST.

What is a ULIP?

ULIPs are insurance-cum-investment products offering life cover and market-linked investment benefits. They combine insurance and investments, allocating a portion of the premium for coverage and the rest for investment in the equity, debt and money markets.

As an investor, you can assess your financial goals and risk appetite to choose the right fund mix to allocate your money. Made for long-term investment goals, ULIP plans come with a 5-year lock-in period that allows you to flexibly change investment courses to capitalize on opportunities and build a sizable corpus.

The Impact of GST on Insurance Premiums

As an indirect tax, the GST tax burden is transferred to the end customer, while the business remits the tax proceeds to the Indian government. In the case of the life insurance cover offered by ULIPs — which is essentially a service provided by the life insurance company to the insured — GST is applicable at the rate of 18% on the premiums paid.

Can You Claim GST on ULIPs as Tax Deductions?

Under section 80 (C) of Income Tax Act 1961¹, you can claim tax deductions on the premiums paid towards ULIP plans. However, the maximum amount of premium (including GST) that you can claim as a deduction is limited to the actual amount paid or Rs. 1.5 Lakh, whichever is lower. Moreover, if you’ve added a critical illness rider² to the plan, you can also claim deductions under section 80 (D).

Summing It Up

ULIPs present a unique opportunity to enjoy a life cover while exploiting the capital markets. This has continued driving their popularity despite the 18% GST rate applicable to them. Moreover, you also have the opportunity to recoup premium costs (including GST) if they fall within the 80(C) deduction norms. So, now that you know what a ULIP is and how GST applies to such plans, you can make an informed investment decision.

Related Articles:

1. ULIP Plan Charges You Must Know

2. Investing in ULIP Plans - Things You Must Know

3. 6 Tips to Maximize your Gains from ULIP

4. ULIPs - Must you invest in them?

5. 10 Most Frequently Asked Questions about ULIP

6. 6 Tips to Maximize your Gains from ULIP

ARN - ED/08/23/3655