When it comes to insurance, a service tax is levied on risk premium. In cases of term, motor and health insurance, the entire premium is considered as risk premium; therefore, service tax is levied on the entire premium paid.
In theory, this could mean an increase of 3 per cent in premium from the existing applicable premium, effective from July 1, 2017, across life, health and general insurance. However, some of this should be offset if tax on services availed by the industry are allowed to be taken into account to decrease insurers' tax paid.
Vighnesh Shahane, CEO, IDBI Federal Life Insurance, explains this further: "If the premium of the term insurance policy is Rs 20,000 (including taxes), you will have to pay Rs 600 more (3 per cent more) after July 1. However, we may be entitled to an additional credit against taxes that have been subsumed under GST. However, whether premiums fall over time still remains to be seen."
"In case of ULIPs, the following charges are liable for service tax (including SBC & KKC) at the rate of 15 per cent - surrender charges, fund management charges, policy administration charges, switching charges, mortality charges and allocation charges," says Miranjit Mukerjee, CFO, Future Generali India Life Insurance.