Type of Annuity Plans & the How Does GST Affect Your Annuity Plan?

Type of Annuity Plans & the How Does GST Affect Your Annuity Plan?

Retirement is an integral part of an earning individual’s life. Whether you are a salaried employee or self-employed, at some point you may stop working and retire. But when you retire, you may not have a regular income stream as before. So, how do you ensure that you stay financially independent in your golden years? 

The answer is simple – plan your retirement well in advance. You must start thinking about your retirement as soon you start working and invest a small amount towards the retirement funds periodically so that you can build a sizeable corpus in the long run. Also, at the same time, you must think about how you can increase your retirement savings rather than just letting it sit idle. 

This is where the annuity plans play a vital role. You can invest in various annuity schemes that allow you to receive regular payments known as pension in your post-retirement life. 

Furthermore, there are various types of annuity plans, such as-

  • Immediate Annuity

You need to make a lump sum payment to buy this annuity plan. The annuity payout will start immediately after the payment is made.

  • Deferred Annuity

In case of a deferred annuity plan, you can accumulate a corpus during the policy tenure. When the policy term ends, you will start receiving the pension. The pension can be received at regular intervals.

  • Fixed Annuity

This type of annuity can provide a fixed monthly pension to the policyholders. In this annuity plan, the investment is made in fixed income options.

  • Periodic Annuity

In case of the periodic annuity, the policyholder can receive a regular payout in retirement. The frequency of payouts can be pre-decided.

  • Lump Sum Annuity

In this annuity plan, the policyholder can get a lump sum payout. However, in this plan, the policyholders aren’t generally allowed to withdraw 100%. The remaining amount is kept in place.

  • Variable Annuity

In case of the variable annuity, the investment is made in market-linked options. Thus, the payouts will depend on the performance of the fund.

Benefits of Annuity Plans

  • The policy can offer a fixed income for life after retirement
  • You have the flexibility to choose the payout mode
  • You can also receive tax benefits

The Effect of GST on Insurance Plans

In order to purchase a policy, you will have to pay GST on the premium and other expenses. GST on single premium annuity plans is at 1.8%. It will also be levied on the delayed premium amount that is paid as a lump sum to renew a policy. The GST will be applied on the revival amount and the interest part.

Furthermore, a GST of 18% is levied on term insurance plans. A GST of 18% will also be levied on the additional premium paid to purchase an add-on. The GST rate for ULIPs is also 18%.

In case of traditional plans, that comprise investment and insurance, the GST is charged at 4.5% on the first-year premium and 2.25% on the premiums for the next years.