Increased Service Tax Revised Service tax – Increased to 12% from 10% previous financial year. ST Cess Total ST Current 10% 0.30% 10.30% Revised 12% 0.36% 12.36% Policy holders to bear the additional service tax load New service tax effective from 1st April,2012 What does it mean for Policyholders: Impact on premium on different types of insurance plans. Is owning an insurance policy costlier? What does it mean for Insurance companies: Any Operational challenges ? Proposal with less money collected before 31st of March,2012 Backdated polices issued after 31st of March,2012
Impact of Increased Service Tax Service Tax loading for different Insurance Plans: For Endowment and Whole life plans Composite rate of service tax applied is increased from 1.545% to 3.09% (including cess). Applicable only in the first year – Policy owner will pay 50% extra service tax for the same sum assured in the first year. Subsequent years (Premium Paying term), the rate of service tax is 1.5%. For Term plans Service tax of 12.36% will be applicable on the entire premium. For Unit Linked Plans ( below example on Premium amount allocation) Application of Service tax on the front end load component of a premium installment Premium FEL Rate FEL ST Amount allocated Current 1000 15% 150 15.45( i.e. 834.55( i.e.1000 150*0.1030) - (150+15.45) After Budget 1000 15% 150 18.54 ( i.e. 831.46( i.e. 1000 150*0.1236) - (150+18.54)
Impact of Increased Service Tax For Unit Linked Plans Service tax is applicable on following other cost heads Mortality charge Fund management charge Policy Admin charge. Lesser amounts available for allocation. Overall increase in cost of ULIPs policyholders. For Non-life plans Service tax of 12.36% will be applicable on entire premium. Overall increase in cost for policyholders.
Operation challenges: What if Proposal with less money is collected before 31st March 2012 and issued in April: • As per the IRDA guide lines, Service tax rate on premium amount should be applied as on the due date . • In this scenario the new rate will be applied and amount that has collected is not sufficient to issue the policy (assumption diff. in amount is greater than the tolerance limit provided by the Insurer) • Insurer has to communicate with the policy holder to get that extra amount due to the increase in service tax amount. • If policy data is already entered in the system ( having old rate set up) then need to perform data fixation on the data related to financial transaction in future, for these policies. IRDA :Insurance Regulatory Development Authority
Operation challenges: What if Backdated policy issued after 31st March : • Old service tax will be applied as per IRDA guide rule, because policy issue date is before 31st of March,2012 . • Policy will be issued and • Data fixation is not required on these policies.
Tax exemption under section 80C and 10D of Income tax act
Extension in Rashtriya Shashthya Bima Yojona (RSBY)
Extension in Rashtriya Shashthya Bima Yojona (RSBY) RSBY Coverage extended to non-BPL(below poverty line) workers from the un- organised sector. Exclusions - workers and their families, if covered under the Employees’ State Insurance Scheme, Central Government Health Scheme etc., are not covered under the expanded RSBY.
The role of Value added IT service provider Value added IT service provider can help insurers implement Change in the service tax rate, Set the new rate Build new functionality Migration where needed. Change in the minimum Sum assured limit Insurer to develop new insurance products. implement necessary changes the same in Policy administration systems.