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.

GST on Premiums for LIC Term Plans

The GST on life insurance premiums is normally charged at 18%. 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; thus, your total Premium would be ₹11,800.

GST on Premiums for LIC Endowment Plans

In the initial year of your endowment scheme, you will pay 4.5% GST on the Premium. Thereafter, it comes down to 2.25% for every subsequent year. 

Why is the difference?

Because the GST is only charged on the risk protection component of the Premium and not the savings component, technically, 18% GST is levied on 25 per cent of the first year’s premium (this is equivalent to 4.5 per cent) and 12.5% of the Premium in subsequent years (therefore 2.25 per cent).

Let’s understand with an example, 

Assume you have a yearly premium of ₹20,000. You pay 4.5% GST (₹900) in the first year, and you are left with ₹20,900 in total Premium to be paid. From the second year onwards, GST will be 2.25% (₹450) which makes your total Premium ₹20450.

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. 

But the GST is only 1.8 % on a single-premium plan (where you pay the entire amount in a lump sum). 

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%. It should be noted here that such tax is imposed on only the insurance coverage part of the Premium and not on the investment part. 

Hence, the GST on ULIPs can differ on the basis of the amount of the Premium assigned to Insurance and investment.

Example:

Total Premium: ₹25,000

Insurance Component: ₹10,000

GST on Insurance: ₹1,800

Total Premium Payable: ₹26,800

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. However, it may get reduced in the coming months. 

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 Premium 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 (18%): ₹2,160

Total Premium Payable: ₹14,160

Endowment Plan:

Premium: ₹40,000

GST (4.5%)*: ₹1800 (for first year)

Total Premium Payable: ₹41,800

Note: Second year onwards, GST on LIC premium will be reduced to 2.5%

Health Insurance Plan:

Premium: ₹18,000

GST (18%): ₹3,240

Total Premium Payable: ₹21,240

GST Exemptions for LIC Premiums

The following are the insurance service schemes which are exempted from GST: 

1. Insurance services provided by Insurance Regulatory and Development Authority (IRDAI)

2. Annuity plans under the National Pension Scheme (NPS) regulated by PFRDA

3. Life insurance services provided under government-run schemes, such as –

• Janashree Bima Yojana (JBY)
• Varishtha Pension Bima Yojana (withdrawn in 2015-16)
• Pradhan Mantri Jeevan Jyoti Bima Yojana
• Pradhan Mantri Jan Dhan Yojana
• Aam Aadmi Bima Yojana (AABY)
• Pradhan Mantri Vaya Vandana Yojana
• Micro-life insurance schemes with a maximum cover of Rs. 2 lakhs, approved by the IRDAI. 
• Any other schemes of the state government 

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%, 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: 18% GST

Endowment Plans: 4.5% GST in the first year, then 2.25% from the second year onward.

Pension Plans/Annuities: Regular premium plans follow the endowment model (4.5% first year, 2.25% after).

Health Insurance Plans: 18% GST, similar to term plans. 

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 18% 

What is the GST on medical Insurance?​

The GST on medical Insurance is the same as health insurance, i.e 18%