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Impact of GST on Insurance and Banking



Updated on: Jan 18th, 2023


8 min read

With a hike in post-GST rates to 18% from the current 15%, both the insurance sector and banking sector got expensive after 1st July 2017. Impact of GST on insurance and banking increased the premiums especially for families that pay for health, life and a car insurance.


GST & Insurance

Life Insurance & Health Insurance

There are 3 types of life insurance :

  • Term insurance plans- basic life insurance policies
  • ULIPs– insurance and investment under a single integrated plan
  • Endowments (including money-back)- life insurance policies that pay a lump sum on maturity/death or a fixed sum every month (sort of like a pension)

Service tax was applicable on each type is different – For example, ICICI Prudential Life Insurance applies service tax at the following rates:

CategoryService Tax With SBC And KKCAfter GST
Term insurance premium15%18%
ULIP charges15%18%
Health insurance premium15%18%

All these rates was replaced by 18% which resulted in increase in premiums. The value of supply of services in relation to life insurance business is:

The value of supply of services in relation to life insurance business is:

a) The gross premium minus the amount allocated for investment, or savings on behalf of the policyholder, if such amount is informed to the policyholder.

For example,

ParticularsUnder Service TaxUnder GST
Gross Premium10001000
Investment Portion600600
Life Insurance portion400400
Service tax @ 15% on 40060—–
GST @18% on 400—–72

b) Single premium annuity policies- 10% of the premium

c) All other cases- 25% for 1st year and 12.5% for 2nd year onwards on the premium charged.

Gross Premium p.a.1000
1st Year 
25% of value250
GST @18% on 25062.50
2nd year 
12.5% of value125
GST @18% on 12522.50

d) If the entire premium is for life insurance, GST @18% will apply on the entire premium


Both pre-GST and new policyholders faced an increase in the premium amounts due to increase in rates. For insurers, the increase in taxes were passed on to the consumers. The insurers faced a higher compliance and administrative costs due to the increased number of GST returns and that also affected of taxability of inter-branch services.

General Insurance

General insurance includes fire insurance, marine insurance, car insurance, theft insurance etc. The GST rate is 18% on general insurance.


For policyholders, the general insurance premium rose as tax rate increased from 15 to 18%. Corporate policyholders, who have taken general insurance enjoy input tax credit on the GST paid on their policies (it was available to them even under service tax). Persons who are life and health insured will not have input tax credit as it is not available for life and health insurances (as these are taken for personal purposes). Even corporate policyholders with group life and health insurance for their employees do not enjoy any input tax credit.

Life insurance provided by Government schemes are exempted from GST:

  • Janashree Bima Yojana (JBY)
  • Aam Aadmi Bima Yojana (AABY)
  • Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum cover of Rs. 50,000
  • Varishtha Pension BimaYojana
  • Pradhan Mantri Jeevan Jyoti BimaYojana
  • Pradhan Mantri Jan Dhan Yogana
  • Pradhan Mantri Vaya Vandan Yojana
  • Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.
  • Life insurance provided by Central Government to members of the Army, Navy and Air Force.

GST on No Claim Bonus

After a decision was reached in the 48th GST Council meeting, the CBIC clarified the applicability of GST on 'No Claim Bonuses' via Circular No. 186/18/2022-GST. 

Insurance companies typically offer their customers a 'No Claim Bonus' in cases where there have been no insurance claims made during the period of insurance. The amount is offered at the time of renewal of the insurance policy as a form of reward or discount and is deducted from the premium to be paid.

As per the Circular, the customer or insured person procures an insurance policy to indemnify themselves from any loss or injury as per the terms of the policy and are not under any contractual obligation to not claim insurance during the insurance period. There is no supply provided by the insured person to the insurance company by not lodging insurance claims during the insurance period. 

As per clause Section 15(3)(a) of the CGST Act, the value of supply shall not include any discount given before or at the time of supply if the same has been recorded on the invoice. Hence, the 'No Claim Bonus' cannot be considered as a consideration for any supply provided and is treated as a discount and deducted, and there will be no GST applicable on the same.


Banking services was charged a 15% service tax which later on got increased to 18% under GST. Like insurance, banking services became more expensive to the customers due to increase in taxes. Most banks apply transaction charges on cash withdrawals from different bank ATMs, cash withdrawals from branch (first 5 for both are free). All these attract an 18% GST.

Banking Companies

Banking companies pass on the tax liability to their customers. However, their administrative and compliance work increases tremendously. Branches give services to each other that is taxable under GST (they can later claim input tax credit). It increase the paperwork and accordingly increase the operating costs. Business consumers can heave a sigh of relief as they can claim the input tax credit on the banking services paid on their business accounts.


All policyholders pay a higher premiums on their insurance due to increase in GST rates. An average family with life, health and car insurance found an increase of 3% on their insurance expenses. Assuming they spend a total of Rs. 30,000 per year on insurance excluding service tax, their expenses increases by 3% i.e., Rs. 900. 

An edited version of this article has also been published in Financial Express.

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About the Author

DVSR Anjaneyulu, known by the name AJ, I've got a vast experience in accounting, finance, taxes and audit. I'm always keen to simplify laws for the readers and learn about the Indian finance ecosystem. I also love listening to music, travelling, and, most importantly, conversing with people to better understand the world.. Read more


Quick Summary

Post-GST, insurance premiums increased by 18%. General insurance, life insurance, banking services, and No Claim Bonus were affected. Life insurance exempted from GST includes Government schemes. 'No Claim Bonuses' are tax exempt. Banking had 15% service tax, increased to 18% under GST. Increase in taxes passed to customers. Impacted sectors faced compliance costs. Policyholders pay higher premiums due to GST. Potential increase in insurance expenses for the average family.

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