Provision of service tax to make insurance policy costly from January 1, 2014

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Provision of service tax to make insurance policy costly from January 1, 2014
The implementation of new IRDA regulations pertaining to life insurance as well as health insurance from January 1, 2014 is likely to make insurance policies more expensive. The decision was earlier deferred for three months, until Jan 1, 2014.

Until now, service tax in lieu of the insurance was paid by the insurers but with effect from January 1, 2014, service tax will be added to the policy premium and customers will have to pay a higher sum for renewal of the policy.

Service tax will be charged at differential rates depending on the policy type. Terms plans and Unit-Linked insurance products will attract a tax rate of 12.36% while other conventional plans will be charged @ 3.09% (as substantial portion of the investment is deployed into savings).

With it all players in the industry are required to include the applicable service tax rate in their policy pricing design and put forth tax details exactly for customers.

The provision of service tax in the insurance premium is supposed to adversely affect the industry as well as the customer base. And, agents in the industry shall then find it very difficult to prompt customers to make insurance policy purchase at a higher premium.

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