The Hindu Business Line : Life insurance comes under service tax net

LIFE insurance services have come under the service tax net with effect from Friday, with the Finance Ministry withdrawing the exemption that was granted to such services in 2002.

For the existing life insurance policyholders, the upsetting news, in effect, is that they too will have to fork out the tax on the premium payable by them on or after September 10, 2004.

The only comfort for the policyholders — assuming that the insurer would pass on the service tax burden to them — is that the levy will be restricted to the risk cover. In other words, it means that the service tax is to be levied only to the extent of the risk premium. The current service tax rate is 10.2 per cent, including the two per cent education cess.

The Finance Ministry has also provided an option to the insurer, whereby he can pay one per cent of the gross amount of premium charged by him towards the discharge of his service tax liability instead of paying service tax at the rate of 10.2 per cent of the risk premium.

This option will, however, not be available in cases where the entire premium paid by the policyholder is only towards risk cover in life insurance. It will also not be available in cases where the portion of the premium payable towards risk cover in life insurance is shown separately in any of the documents issued by the insurer to the policyholder.

"The idea of giving an option is to make the process convenient for the insurer. They (Finance Ministry) would have analysed and come to a conclusion that one per cent of the gross premium would be more or less equal to 10.2 per cent of the risk premium that is sought to be taxed for service tax purposes", sources said.

Meanwhile, on the issue of imposition of service tax on transport of goods by road (by a goods transport agency), the Revenue Department is understood to have given internal instructions to field formations that the collection of service tax be kept in abeyance till the report of the committee appointed by the Finance Ministry is submitted.

With the Finance Bill, 2004 becoming a law from September 10, as many as 13 new services including transport of goods by road (by a goods transport agency) have been brought under the service tax net from the same date.

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