 "Insurance may fall under 12% tax slab in new tax regime")
Insurance might come under the 12 per cent tax slab in the goods and services tax (GST) regime to be implemented from April 1, 2017, sources said. The sector had sought a slab of five per cent of less.
Sachin Menon, partner and head of indirect tax at KPMG, said while there was no clarity on the rates, there wouldn’t be any additional cess applicable on these services. Here, he said insurance will be classified as a service.
At present, apart from the 14 per cent service tax, Krishi Kalyan Cess and Swachh Bharat Cess are also applicable, taking the total service tax applicable on insurance products to 15 per cent. The service tax rate for other products such as annuity in case of single premium policies is 1.5 per cent approximately.
Insurers, however, do not have any clarity on how the new GST tax structure will be implemented. “Different products attract different rates of service tax. If there is one rate proposed for insurance, the question is whether the lower tax structures for products like annuity will continue,” said the chief executive officer of a private life insurance company.
Another area of concern is whether the same rates of service tax will be applicable for government-sponsored programmes such as the Pradhan Mantri Jan Suraksha insurance scheme. “If it is a one-nation, one-rate system, all insurance products including those with focus on financial inclusion will have to be clubbed under one tax slab. We do not know how this will be done,” said the appointed actuary at a mid-size private life insurer.
In 2014, service tax was made applicable on insurance premiums. Later, in 2015, Finance Minister Arun Jaitley raised the rate of service tax from 12.36 per cent to 14 per cent. Insurance premiums had come under the service tax ambit from 2014 when the government had made changes to the Finance Bill. After this, the service tax impositions were passed on to customers in the form of increased premiums.
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This will provide relief to policyholders who pay almost 15 per cent for insurance policies as premium. So, if tax is reduced to 12 per cent, it will mean insurance premiums will also go down.
Earlier, major players such as the Life Insurance Corporation of India had expressed reservations about service tax being imposed on insurance premiums. They wanted insurance premiums to be excluded from the purview of service tax. However, their demands were not considered.