GST rollout: Here's how much more premium you need to pay on insurance policies

Goods and Service Tax (GST) will be the new face of India's tax structure from next week. The government has now officially said that President Pranab Mukherjee will be launching GST on June 30 midnight. 

With GST coming into effect, your finances are set to take a hit. The banks and credit card providers or an insurer have already started sending alert messages to theit customers stating that they need to "pay higher tax post implementation of GST from July 1."

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Customers currently pay 15% service tax for financial services. Starting from July 1, 2017 the GST will replace all indirect taxes like service tax and Value Added Tax. Financial services and telecom have been put in the 18% GST slab. 

Here we explain you the impact of GST in two financial scenarios: credit card bill and insurance premium.

Reportedly, GST will be levied at the rate of 2.25% on premium payment for an endowment policy. At present, customers pay 1.88% service tax on endowment policies.

Adhil Shetty, CEO & Co-founder Bankbazaar.com said in case of credit card bills there are no service charges associated with retail transactions and, therefore, no associated service taxes. 

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However, any and all services charged by the banks on the cards, such as the annual fees, renewal fees, cash advance fees, finance charges, late fee charges, as well as any surcharges such as fuel surcharge, etc, are taxable. These will see an increase of 3% up from the current 15%.

Moreover, in case of insurance premium, the insurance policies where the entire premium paid goes towards the risk cover such as in life insurance, or term insurance plans or general insurance policies for health or vehicle insurance, the GST of 18% will be on the entire premium. For other life insurance products, as per GST rules, the value of services on which GST is to be imposed is calculated as the gross premium minus the amount allocated for investment.

"In case of single premium annuity policies, 10% of single premium is taxable. So, for a Rs 1 lakh premium, Rs.10,000 would be taxed at 18% now as opposed to 15% earlier. So the tax payable goes up from Rs.1500 to Rs.1800," Shetty explained. 

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In all other cases, 25% of the premium in the first year and 12.5% of the premium in subsequent years is taxed. So, if the premium of an endowment plan is Rs.1000, the GST of 18% will be applicable on the 25 of the premium, i.e, on Rs.250, so, Rs.45 will be the post-GST amount as opposed to the current Rs 37.5.

To save yourself from giving out high amount go digital way. The premium of these policies are lower because the agents’ commissions and administrative costs are very nominal when the policies are purchased online, Shetty added.