Unit Linked Insurance Plans (ULIPs) combine insurance coverage with investment opportunities, making them a popular choice for Indian investors. However, understanding the Goods and Services Tax (GST) implications on ULIP premiums is crucial, as it affects the overall cost and returns of the policy. GST is applied on the premiums you pay towards your ULIP policy, which includes charges for life cover, fund management, and other administrative expenses. Additionally, GST may also apply to the surrender value of the policy under certain conditions. This article explains the GST implications on ULIPs, including its rate, impact on returns, and applicability on surrender value.

• GST on ULIP premiums is charged at 18%, impacting the first year and renewal premiums.
• Fund management and administrative charges attract 18% GST, slightly reducing ULIP returns.
• Surrender value deductions, such as fund management fees, are also subject to 18% GST.
• Understanding GST implications ensures better financial planning for ULIP investments.
• Opting for ULIPs with lower charges can mitigate GST impact on long-term returns.

GST is applied on the premium paid for ULIPs and varies depending on the components of the premium. As of now, the GST rate applicable is 18%, which affects the overall cost of the policy.

Key details about GST on ULIP premiums:

• GST on first-year premium: For the first-year premium, GST is charged at 18% on the portion allocated to life cover and fund management.
• GST on renewal premiums: For subsequent premiums, GST is charged at 18% but typically on a smaller proportion compared to the first year.
• Fund management charges: Fund management charges, part of ULIP expenses, attract 18% GST.
• Additional charges: Administrative fees and premium allocation charges are also subject to 18% GST.

Example: If your first-year premium is Rs. 1 lakh and Rs. 20,000 is allocated for life cover and fund management, GST of 18% will apply to Rs. 20,000, i.e., Rs. 3,600.

GST affects ULIP returns as it increases the overall cost of the policy, thereby reducing the net returns over time. While ULIPs remain an attractive investment option, GST can marginally affect long-term gains.

Impact of GST on ULIP returns:

• Higher upfront costs: GST on first-year premiums is higher due to the premium allocation charge, which may reduce the initial investment in funds.
• Reduced compounding effect: GST on fund management charges reduces the amount invested in the market, slightly affecting long-term compounding.
• Lower surrender value: If the policy is surrendered, GST on applicable charges can reduce the payout.
• Transparency in costs: While GST increases costs, it ensures clarity in the breakdown of premium components.

Pro tip: Choosing ULIPs with lower charges and consistent premium payments can help mitigate the impact of GST over the policy tenure.

GST is applicable on certain charges deducted from the surrender value of a ULIP policy. These deductions include fund management fees and administrative charges, which attract an 18% GST.

Details on GST and surrender value:

• Fund management charges: The GST of 18% is levied on fund management charges deducted from the surrender value.
• Administrative charges: GST is also applied to administrative charges when a policy is surrendered.
• Surrender within the lock-in period: If you surrender the policy during the five-year lock-in period, the surrender value may be lower, as GST will also be applicable on certain deductions.
• After lock-in period: Post the lock-in period, GST applies only to fund management and administrative charges, which are relatively lower.

Example: If the fund management charge on your ULIP surrender is Rs. 5,000, the GST at 18% would amount to Rs. 900, reducing your net payout.

GST on ULIP premiums and related charges can impact the overall cost and returns of the policy. While the GST rate of 18% may seem significant, it ensures transparency in pricing. By understanding GST implications and selecting cost-effective ULIP policies, investors can optimise their investments for long-term benefits while managing tax liabilities effectively.