When we pay an insurance premium, we also pay GST. This effectively increases our overall premium. Can we include this amount also while claiming deduction u/s 80C and 80D?
Of course yes, provided the total claimed amount does not cross the overall limit as specified under these sections.
On health insurance policies we have to pay GST at the rate of 18%. So, for example, if the premium is Rs. 21,000, then GST will come to Rs. 3,960, thus total premium equals Rs. 24,960. As this total amount is still within the limit of Rs. 25,000 available u/s 80D – we can very well claim the entire amount.
In case of a term plan, GST is levied at the rate of 18% on the entire premium of the policy, just like in health insurance. Similarly, the total premium paid (including GST) will be eligible for a tax deduction if it’s within the limit of Rs. 1,50,000 that is available u/s 80C.
For ULIP, GST is only levied on the charges, including premium allocation, policy administration, fund management and mortality charges. No GST is levied on the investment part. In cases of endowment or traditional plans, GST is levied only on 25% of the total premium in the first year. In all subsequent years, GST is levied on 12.5% of the total premium paid.