There are hidden gems for policyholders and insurance agents in the union budget. Last year a provision to impose service tax on all charges levied by life insurers on ulip policyholders has been reworked so that service tax is now applied only on fund management charges.

Life insurance agents too can rejoice as the government has now raised the limit for exemption from tax deduction at source to Rs 20,000 from Rs 5,000 earlier. Insurers say that agents will have to bring in insurance premium of over Rs 1,00,000 in a year to come under the TDS. Under the revised limit more than half the life insurance agents will be exempt from tax deducted at source.

According to Gaurang Shah, managing director, Kotak Mahindra Life Insurance the removal of the service tax on other charges will result in an improvement in yield for the policyholder ranging from 20 basis points to 30 basis points depending on the tenure and size of the policy.

Two years back the government had decided to tax the life industry under a formula which was brought out by an illustration in the finance bill. In terms of the illustration if the total premium paid for ULIP was Rs 100, and the risk premium (towards life protection) was Rs 10 and the amount actually invested was Rs 85, the balance Rs 5 (Rs 100- Rs 10 - Rs 5) would be subject to service tax.

The budget has clarified that service tax will now be imposed only on fund management which is only Rs 1.35 on every Rs 100 invested.
Source - economictimes.com

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