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Is GST Applicable on ULIPs?

Is GST Applicable on ULIPs?
September 07, 2023


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

1. Subject to conditions specified u/s 80C of the Income tax Act, 1961.

The afore stated views are based on the current Income-tax law. 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.

2. For all details on Riders, kindly refer to the Rider Brochures available on our website.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.