The GST rate on LIC premiums confuses almost everyone. The same policy can attract 4.5%, 2.25% or 18% GST depending on plan type and policy year. This guide removes the confusion permanently.
Three GST Rates, Three Categories
| GST Rate | Applies To |
|---|---|
| 4.5% (1st year only) | Endowment, money-back, whole-life policies — first year only |
| 2.25% (from 2nd year onwards) | Same endowment/money-back/whole-life policies — renewals |
| 18% (all years) | Pure term insurance plans (Saral Jeevan Bima 860, Jeevan Amar 955, New Tech-Term 954) |
Why Two Rates for Endowment Plans?
The lower renewal rate (2.25% vs 4.5% in year 1) reflects the fact that a big chunk of the first-year premium covers commissions and acquisition costs. The Government wants to keep insurance affordable for long-term customers.
Worked Example — Plan 915 Yearly Premium ₹50,000
| Policy Year | Basic Premium | GST | Total Paid |
|---|---|---|---|
| Year 1 | ₹50,000 | 4.5% = ₹2,250 | ₹52,250 |
| Year 2 | ₹50,000 | 2.25% = ₹1,125 | ₹51,125 |
| Year 3–21 | ₹50,000 | 2.25% each year | ₹51,125 each |
On a 21-year plan, you save approximately ₹25,000 in GST versus paying 4.5% in all years — just by being a long-term customer.
Term Plans Attract 18% — Why?
Term insurance is a service (no investment component), so it falls under the 18% GST slab that applies to most financial services. The maturity/death claim itself is tax-free under Section 10(10D), so the higher GST on premium does not reduce the family's eventual benefit.
Is GST on LIC Premiums Eligible for Tax Benefit?
Yes — the entire premium including GST is eligible for Section 80C deduction, up to ₹1.5 lakh per financial year. Don't forget to claim the GST portion too.
Where Does the GST Go?
It's split equally between CGST (Central GST) and SGST (State GST) since LIC is an intra-state service for most policyholders. If you bought the policy in a different state from where you currently reside, IGST may apply — LIC will handle it automatically based on the policy's registered state.