Life insurance premiums for unit-linked insurance policies (ULIPs) are set to become expensive as finance minister Pranab Mukherjee announced a change in norms, which would bring a portion of premium under the increased service tax net.
Service tax on your first year premium would increase from 1.5% to 3% of the gross premium.
Under the revised norms, applicable from April 1, 2012, the portion of premium that is invested in equities and do not constitute risk cover for mortality will attract service tax.
“With respect to the life insurance sector, the recommendations related to tax exemption under 80 C and 10 (10D) and an increase in service tax would bear a substantial impact,” said Rajesh Sud, CEO and MD, Max New York Life Insurance.
“This will result in different amounts for first-year premium and renewal premium.” V Srinivasan, CFO, Bharti AXA Life Insurance, said increasing the sum assured to premium ratio to 10 times will promote long-term contracts.
Life insurance service: Where the entire premium is not towards risk cover, the first year’s premium shall be taxed at the rate of three per cent. while subsequent premia shall attract tax at the rate of 1.5 per cent. Availment of full cenvat credit is being allowed.