YOUR premium on life insurance polices can go up or returns on life insurance plans may go down by 0.5 per cent to 0.75 per cent with finance minister bringing services by life insurance companies in the area of investment in the ambit of service tax.

"It is being provided that tax shall be charged in the portion of the premium...

The composition rate is also being increased from one per cent to 1.5 per cent," finance minister said in his budget speech.

In case of traditional endowment plans, the service tax rate has been increased from one per cent to 1.5 per cent. In case of unit-linked insurance plans (Ulips), service tax will be levied on entry load. Which means service tax will be levied on fund allocation charge and fund management charge as well.

TR Ramachandran, MD and CEO, Aviva Life Insurance, said, "Under traditional policies, insurers do not levy a separate fund management charge.

Therefore, how the taxable value will be determined is yet to be notified by the government. At present, in case of pure term life insurance policies, normal service tax of 10 per cent is applicable. " This has been increased to 1.5 per cent of total premium.

"Insurance companies will have to pass on the tax burden to customers, but by how much is not clear right now," said GV Nageshwara Rao, CEO, IDBI Federal Life Insurance.

Insurers are unhappy with the changes in tax laws for life insurers. V Srinivasan, chief financial officer, Bharti Axa Life Insurance, said, "There seems to be no long-term stable tax regime for the life insurance sector, considering that it is a long-term business. Such frequent changes in taxation in the sector will adversely impact the industry.
The hike in service tax on participatory business will have a negative impact for the policyholders."

(With inputs from R Srividhya, Chennai) shrutiverma @mydigitalfc.com Tax issues In traditional endowment plans, the service tax rate has been increased to 1.5% In case of unit-linked insurance plans (Ulips), service tax will be levied on entry load This means service tax will be levied on fund allocation and fund management charge

 source :- mydigitalfc