Friday, January 3, 2014

Insurance policy to get dearer from 1st January

From January 1, 2014, insurance policy will get costlier as the government widens its service tax purview to include insurance policy premiums paid by policyholders.

The tax rate will be different for different products. On term products and unit-linked insurance policies, in which charges on mortality and administration only, it will be 12.36 %; while on traditional products it will be 3.09 %, as most of the premium goes into savings.

Confirming the separate collection of service tax, Mr. A.K. Sahoo, Executive Director, LIC and Chief of South Central Zone, told 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.

“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", Mr. Sahoo said.

According to experts, it would have an adverse impact on insurance, which is basically a social security instrument.

“When the penetration of insurance is still low, this may discourage people from buying life insurance,'' said Mr. P. Nandagopal, CEO, 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 Regulatory and Development Authority (IRDA) has requested the union finance ministry for removal of service tax. Insurance should be more tax-payer friendly, it said.


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