From January 1, your insurance policy will get costlier as the Government widens its service tax net to cover the policy premiums paid.
With this, premiums being paid by the policyholders of Life Insurance Corporation, will go up. Most private insurers had already started collecting service tax separately.
“Confirming the separate collection of service tax, A.K. Sahoo, Executive Director, Life Insurance Corporation of India and Chief of South Central Zone, told Business Line here on Monday that final guidelines on the modalities of service charges to be levied on the risk premium (excluding savings component) would be out in about a week.
The tax rates differ from product to product, according to Manoj Kumar Jain, Chief Executive Officer, Shriram Life Insurance Corporation.
It will be 12.36 per cent on Unit-Linked Insurance Policies (only on charges, such as mortality and administration), 3.09 per cent on traditional products as most of the premium goes into savings, and 12.36 per cent on term plans.
“With the complete switch-over to the new product norms from January 1, all the companies have to include this in the new design norms clearly spelling out the exact details of taxes,” he said.
However, this might have an adverse impact on insurance, which is basically a social security instrument.
“When the penetration of insurance is still low, this may deter people from buying life insurance,’’ said P. Nandagopal, Chief Executive Officer, India First Life Insurance Company.
There have been requests from the industry to waive service tax on life insurance after it was announced in this year’s Budget proposals.
“Even the insurance regulator has written to the Finance Ministry about the need to make insurance more tax-payer friendly. So far nothing has been decided on this,” a senior IRDA official said.
But the agents and customers are worried. “Already, the insurance market is down for the last two years. It will be a challenge to convince a customer to buy a policy with a service tax component,” P. Vignesh, a senior agent with LIC, said.
“What is the logic of service tax on insurance when most of the people do not have social security support unlike in some foreign countries,” questions M. Balasubrahmanyam, a policyholder of Bajaj Allianz Life.
Removal of the tax will be highly welcome, said Jain.