The government on Monday proposed to increase the service tax on life insurance policies to 1.5 per cent from 1 per cent, a move that would increase the premium cost for policyholders.
“It is being provided that the tax shall be charged in the portion of the premium. The composition rate is also being increased from 1 per cent to 1.5 per cent,'' Finance Minister Pranab Mukherjee said while presenting the budget in Parliament.
“In case of traditional endowment plans, the service tax rate has been increased from 1.03 per cent to 1.545 per cent.
“Although the increase is marginal, there could be some increase in premium or returns might be lowered,'' Max New York Life Insurance CEO Rajesh Sud said.
Global consultancy firm Ernst & Young's Ashvin Parekh said the extension of service tax to services provided by life insurance companies in the areas of investment and health check up or treatment would not have a substantial impact.
“The changes will extend comprehensive service tax coverage to all the services provided by life insurers and hospitals for health insurance,'' said Mr. Parekh, of E&Y.