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K.R. Srivats

New Delhi, April 10 The Finance Ministry has asked the Insurance Regulatory and Development Authority (IRDA) and the Life Insurance Council to furnish details of the various charges levied by life insurance companies for their unit linked insurance policies (ULIP) products.

Official sources said that the details of the various types of charges have been sought to ascertain whether the charges being levied are relatable to investment portion of the ULIPs or not. The Finance Ministry has written letters to both IRDA and the Life Insurance Council on this matter.

A product like ULIP has an insurance element and also an investment segment. The Finance Ministry is keen to levy service tax on all charges collected by the life insurance company for the purpose of management of funds (segregated fund) and not on the risk cover portion.

Budget 2008-09 had proposed to levy service tax on the asset management services provided under the ULIPs. Prior to this, no service tax was applicable on charges levied on the ULIP products of the life insurance companies. In the case of mutual funds, service tax is applicable on ‘asset management charge’.

Life insurance companies contend that the Finance Bill 2008 seeks to extend service tax on all charges levied under ULIP and claim that this runs counter to the Finance Minister’s Budget speech where it was specified that the move was intended to bring parity between the asset management services provided by ULIP and mutual funds. They also feel that any levy of service tax on all charges collected under ULIPs would make this product unviable and thereby slowdown the growth of the life insurance industry.

Official sources said that the investment segment of the ULIP was not technically coming under the purview of any regulator. While SEBI says it has no oversight over life insurance companies, the IRDA was focusing only on insurance part.

“Whatever may be the name one would give, we want to levy service tax on that gross amount charged for management of investment part of the fund (segregated part). There are multiple charges levied by them under different names and most of them are for management of funds given by the investor. They should come clean on the various charges levied by industry and furnish details,” sources said.

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