GST on LIC Premium: What Every Policy Holder Needs to Know in 2025
A debate sparked among netizens when the Honourable Minister, Shri Nitin Gadkari of the Road and Transport Ministry, wrote a letter to the Honourable Minister, Smt. Nirmala Sitharam of the Finance Ministry requested withdrawal of GST from Life and Medical insurance. Though no decision has been made yet, there is some confusion among individuals and businessmen regarding the GST on LIC premium or any other insurance scheme.
In this blog, we will discuss the actual GST on LIC premium for different types of policies, which policies are exempted from GST and in what cases companies can claim ITC on LIC premium.
Latest GST Rate on LIC Premium
The GST Council has decided to reduce GST from 18% to 0%. This is applicable for only LIC insurance policies which are issued for personal use.
Coverage of GST Exemption
The latest GST rate of 0% is applicable to the following types of LIC policies:
- Term life insurance policies (including LIC Yuva Term Plan)
- Unit Linked Insurance Plans (ULIPs)
- Endowment policies
- Traditional life insurance plans
- Reinsurance related to these policies
GST on Premiums for LIC Term Plans
The GST on life insurance premiums is normally charged at 18% (0% after 22nd September under GST Reforms 2.0). Term plans are not an exception since they are among the cheapest life insurance policies. This percentage is rigid, but one can never be too keen to monitor any amendments that can arise as a result of changing the GST laws.
For example, if you’re paying ₹10,000 in Premium annually, the GST on LIC premium would be ₹1,800; (₹0 after 22nd September under GST Reforms 2.0).
GST on Premiums for LIC Endowment Plans
In the initial year of your endowment scheme, you will pay 4.5% (0% after 22nd September under GST Reforms 2.0). GST on the Premium.
GST on LIC Pension Plans or Annuities
In the case of regular premium pension plans, pension plans levy the same GST as endowment plans; 4.5 per cent GST in the first year and 2.25% subsequently. After GST Reforms implementation on 22nd September, 2025, the GST on LIC Pensions Plans would be 0%.
Let’s understand with an example,
Let’s say you have made an investment of ₹10 lakh in a single premium annuity, you will end up paying GST of ₹18000 (₹0 after 22nd September under GST Reforms 2.0).
Let’s understand with an example,
Let’s say you have made an investment of ₹10 lakh in a single premium annuity, you will end up paying GST of ₹18000. This is as a result of the 18% tax rate on Premium that is applied on only 10% of the total Premium, providing an effective rate of 1.8%.
Also, explore PM Modi’s latest announcement on GST reforms.
GST on LIC Unit Linked Insurance Plans (ULIPs)
ULIP schemes are a mix of investment and Insurance, and the premiums are slightly complex because of the investment component. The GST applicable to LIC ULIP premium is 18% (0% after 22nd September under GST Reforms 2.0).
Example:
Total Premium: ₹25,000
Insurance Component: ₹10,000
GST on Insurance: ₹0
Total Premium Payable: ₹25,000
GST on LIC Health Insurance Plans
Health insurance plans, offered by LIC as well as other insurers, are generally subject to GST, the same as life insurance premiums. Currently, health insurance premiums are subject to 18% GST. After GST Reforms 2.0, implementing on 22nd September the applicable GST will be 0%.
Input Tax Credit on GST for LIC Premiums
One of the most common questions that arise is whether businesses can claim Input Tax Credit (ITC) on GST paid on LIC premiums.
The answer is: no, except where the insurance is for a business purpose.
Generally, individual insurance premiums do not qualify for ITC.
However, when the employer is paying the premium that benefits employees, in that case, you can claim ITC.
Examples of GST Amount Charged on LIC Policies
Let’s understand how GST impacts on your LIC premiums with a detailed example:
Term Plan:
Premium: ₹12,000
GST (0%): ₹0
Total Premium Payable: ₹12,000
Endowment Plan:
Premium: ₹40,000
GST (0%)*: ₹0
Total Premium Payable: ₹40,00
Health Insurance Plan:
Premium: ₹18,000
GST (0%): ₹0
Total Premium Payable: ₹18,000
Input Tax Credit on GST for LIC Premiums
The million-dollar question is,
Is it possible to claim some back of that GST?
It is a flat no in case you are an individual policyholder. The GST that you pay on LIC premiums is personal in nature.
However, as a business owner, there is hope. Companies are able to claim the Input Tax Credit (ITC) on GST paid on a general insurance policy taken in the course of business, such as insuring company assets.
But group life or health insurance for the employees?
Not there, unless it is legally mandated.
This is a provision, Section 17(5) of the CGST Act, that keeps corporate policyholders tight.
Thus, in case you are paying GST on your LIC policy, which you are using personally, you may not be able to claim ITC in any case.
Closing Notes
GST on LIC premiums is something that every policyholder should be aware of. Although the GST rate on LIC premium is 18%, (0% after 22nd September under GST reforms 2.0) it is necessary that you ensure that your premiums are calculated correctly and with the tax in consideration. To business and self-employed persons, knowledge of how GST on LIC policies is essential in budgeting, tax planning and compliance.
Frequently Asked Questions
What is the GST rate on LIC Premium?
The GST rate to be paid on the LIC Premium depends on the type of policy. Here are the GST rates based on policy type:
Term Insurance Plans: 0% GST
Endowment Plans: 0% GST
Pension Plans/Annuities: 0% GST
Health Insurance Plans: 0% GST
Can we claim GST input on car insurance?
No, you cannot claim ITC on a car insurance.
How much is the GST on health insurance?
GST on health insurance is 0%
What is the GST on medical Insurance?
The GST on medical Insurance is the same as health insurance, i.e 0%
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