Get set to pay tax on investments in insurance

You may now have to pay more insurance premium with the finance minister proposing to levy service tax on investment component of traditional life insurance policies. HT reports.

Updated on: Mar 1, 2011, 24:06:23 IST

Hindustan Times | By HT Correspondent, Mumbai

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You may now have to pay more insurance premium with the finance minister proposing to levy service tax on investment component of traditional life insurance policies. Customers will have to pay 10% of the investment part of any insurance premium as tax.

“Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs (unilt-linked insurance plans),” finance minister Pranab Mukherjee said in his budget speech.

“While we still need to examine the proposal in detail, however if indeed this is the intent (to tax investment component of traditional life insurance policies), then the proposed service tax will make traditional policies costly for policyholders,” says TR Ramachandran, chief executive officer and managing director, Aviva India.

At present, a traditional life insurance policyholder with schemes such as endowment and money-back plans have to pay around 1% service charge on the total premium paid. However, life insurance companies say it is very difficult to segregate mortality premium and premium attributable to investment.

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