How does the insurance sector cope post-GST ?
GST or Goods and Services Tax have changed the entire financial dynamics of India. There have been many changes in the taxation rules and it has a major influence in every aspect of our lives. The insurance sector isn’t untouched from the GST influence.
As per the new GST rules, there has been a slight hike on the insurance premium, which has been increased from 15% to 18%. This means there has been a hike in all kinds of insurance products and services, including general insurance products such as car insurance, two-wheeler insurance, travel insurance, life insurance, term insurance as well as health insurance.
Let’s do the math
The new GST rules are applicable for both new policies as well as the existing policyholders. That means if you are paying a general insurance premium of 10,000 currently, you are paying a service tax of Rs 1500. However, as per the new rules, you will be paying a tax of Rs 1800. The premiums will increase by 300 basis points, which mean in this case the premium will increase by up to 300 rupees and the person will now pay Rs 11,800.
Therefore, when comparing insurance plans by different companies, calculate the premium with and without GST to understand the difference in a better way.
The traditional insurance saving plans or endowment plans that attract a service tax of 3.75% on the first year insurance premium has also seen a hike and the new tax slab under GST is 4.5%.
The same for 2nd-year endowment plan’s premium is expected to rise from 1.88% to 2.25% post implementation of GST.
The Impact of GST on Insurance
Although the GST impact on insurance premium is nominal, the increase may be significant for someone with multiple policies. If a person pays a total annual premium of 50,000 per year towards health, auto, personal accident and term insurance, he might find a straight rise of 1500 in the annual premium with no additional coverage or risk-benefit.
However, GST is expected to bring the total taxation down improving an individual’s net disposable income thereby bringing things to level in the long-run. Moreover, it will also create a tight competition among insurance players forcing them to cut down on the premium prices to attract buyers. Also, insurance companies are more likely to curb down other expenses related to policy issue and claim settlement making things even better for policyholders.
Calculate Premium Using HDFC ERGO Premium Calculator
As a common man, you may find it difficult to understand the change in premium calculation post application of GST. If so, you can simply get HDFC ERGO Premium Calculator and enter the details of the total sum insured to get the premium amount including GST.
To buy HDFC ERGO general insurance in 3 easy steps, click here
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.