INSURANCE

Insurance is a method of spreading over a large

number of persons, a possible financial loss,
which can not be borne by an individual.
Insurer means any person carrying on general
insurance business or life insurance business in
India.
Insured is any individual who takes the
insurance policy from the insurance company
it is the same person whose risk has been
covered.
 SERVICE TAX IN INDIA
 The tax reforms committee headed by
Dr.Raja.J.Chelliah recognized the revenue
potential of the service sector in India and
recommended imposition of service tax on select
services.
 Dr. Manmohan Singh, the Union Financce
Minister, in his budget speech for the year1994-
1995 introduced the new concept of service tax.
 NEEDS FOR SERVICE TAX
 It is prime responsibility of the Government to fulfill the increasing
developmental needs of the country and its people
 Government’s primary sources of revenue are direct and indirect
taxes.
 While the largest component of GDP in the country comes from the
Service Sector,its contribution to the national treasury had been
insignificant.
 Though there exist various taxes or duties like Union Excise Duties,
VAT, Sales Tax, Entry Tax, or Octroi Duty,etc by Central or State
Government,most of the services are not directly subject to taxation.
 Extending the tax to the service sector was not only to ensure
neutrality and horizontal equity in taxation but also to broaden the
tax base and improve revenue productivity of tax system.
INSURANCE AUXILIARY
SERVICES
Under sec 65 (55) of the act , the term “Insurance auxiliary services”
means any service provided by an actuary, an intermediary or
insurance intermediary or an insurance agent in relation to general
insurance business or life insurance business and includes risk
assessment, claim settlement, survey and loss assessment.
CONCEPTS RELATED TO INSURANCE
AUXILIARY
 ACTUARY

 INTERMEDIARY

 INSURANCE BROKER

 INSURANCE CONSULTANTS

 REINSURERS

 SURVEYORS

 LOSS ASSESSORS
TAXABLE SERVICE RELATED TO
INSURANCE
“Taxable Service” means any service provided to a
policyholder or insurer by an actuary or intermediary or
insurance intermediary or insurance agent, in relation to
insurance auxiliary service.

 Services covered in this category are the services provided by

the insurance agents to the insurance company in relation to
marketing of insurance policies.
 The service providers are insurance agents, insurance surveyors
and actuaries and insurance consultants.
 The service tax is applicable to services provided on or
after16th July 2001 and any payment made for the services
provided prior to this date will not liable to tax even though
payment is made on or after the 16th July 2001.
 ESSENTIAL INGREDIENTS
The services must be provided by:
– an actuary or
– an intermediary or insurance intermediary, or
– an insurance agent

INSURANCE AUXILIARY SERVICE RELATES TO

GIC AND LIC WHICH INCLUDES :
i) Risk assessment
ii) Claim assessment
iii) Survey
iv) Loss assessmentSSS
 INTERMEDIARY LIABLE TO
PAY TAX
 The intermediaries like loss assessors, insurance surveyors,
insurance consultants will be liable to service tax. However,
exception has been made in case of insurance agent.
TAX PAYBLE BY INSURANCE COMPANY ON BEHALF OF
INSURANCE AGENTS:
In respect of services provided by an insurance agent, any person
carrying on the general insurance business in India or life insurance
business in India is the ‘person’ liable for paying the service tax.
 TAXABLE VALUE
 Value of taxable service shall be the gross amount charged by the service
provider for such service rendered by him, includes the commission, fee or
any other sum received by actuary or intermediary or insurance intermediary
or insurance agent from insurer.
 Rule 6 of the Service Tax Rules, 1994, provides for payment of Service Tax
only on the amount received and not on the amount raised for the services
provided. As such Service Tax is payable only on the amount actually
received.
EXEMPTIONS AND EXCLUSIONS
 Pocket expenses, which are reimbursable on actual basis, such as traveling,
Boarding and Lodging expenses, are not subjected to Service Tax subject to
production of documentary evidence in this respect.
 The Service Tax is applicable to services provided on or after16th July 2001
and any payment made for the services provided prior to this date will not
liable to tax even though payment is made on or after 16th july 2001.
 TAXABLE SERVICE RELATING
TO LIFE INSURANCE
 Taxable service means any service provided to a policyholder, by an
insurer carrying on life insurance business in relation to life insurance
business. Though the service is provided by the life of insurance
agents, service tax is not payable by them, but by the insurance
companies. Tax is payable in respect of old policies also. (Section
65(90) (zx) of Finance Act 1944 as amended). Value of taxable
service shall be the gross amount charged by the service provider for
such service rendered by him.
EXEMPTIONS AND EXCLUSIONS
 It has been decided to exempt the service tax leviable on life
insurance business (as per Notification No. 9/2002 ST dated 1-8-
2002) As a result , service tax is not payable on the service provided
by an insurer to a policy holder in relation to life insurance business.
 PERSONS RESPONSIBLE FOR
COLLECTING SERVICE TAX
 The Chairman-cum-Management Director of the National
Insurance Company Limited/ New India Assurance
Company Limited/Oriental Insurance Company
Limited/United India Insurance Company Limited.
 Any other person carrying on general insurance business and
who has obtained a certificate of registration under sec.3 of
insurance act, 1938.

 Insurance auxiliary services concerning General insurance

business and Insurance auxiliary services concerning Life
insurance business include services provided to a policy
holder or any person or an insurer, including a re-insurer.
 STATUTARY COVERAGE
FOR GENERAL INSURANCE:

 Service to a policy holder or any person or insurer, including

re-insurer, by an actuary, or intermediary or insurance
intermediary or insurance agent, in relation to insurance
auxiliary services concerning general insurance business.
 It includes Risk assessment, claim settlement, survey and loss
assessment [section 65(55)].
 In respect of services provided by an insurance agent, the
insurance company is the ‘person liable for paying the service
tax’. The service tax is payable on commission payable to the
insurance agent. However, the exemption available to small
service providers cannot be availed by insurance agent.
 FOR LIFE INSURANCE
 Service to a policy holder or any person or insurer,
including re-insurer, by an actuary, or intermediary or
insurance intermediary or insurance agent, in relation to
insurance auxiliary services concerning life insurance
business.
 It includes Risk assessment, claim settlement, survey and
loss assessment [section 65(55)].
 In respect of services provided by an insurance agent, the
insurance company is the ‘person liable for paying the
‘service tax’.
 EXEMPT MICRO-INSURANCE
FROM SERVICE TAX

 SOURCE : THE ECONOMIC TIMES

 DATE : 6TH JUNE, 2007

The Government should exempt micro-insurance from

payment of Service Tax to make products cheaper and
encourage penetration of insurance services in low income
rural and social sectors, a UN report has suggested.
The service tax 10.2 per cent on premiums adds to the
price of insurance. To help keep premium low for rural poor,
government could consider waiver of Service Tax on micro-
insurance products for a limited period. THE UN
DEVELOPMENT PROGRAMME (UNDP) report said.
 Micro-insurance sector has the potential to generate a business
of two billion dollars (over Rs.8,000 crore) in the next two three
years in India , Anuradha K Rajivan, Author of the report,
‘Building security for the poor’. The report Suggested
partnership of insurance companies with micro-finance
institutions for providing such products to the rural population
according to their specific needs.
Insurance products made for the urban population cannot be
suitable for their rural counterparts. They may need insurance
for a single tree or insurance against snakebite, the things that
affect them more frequently and directly. The report suggested
pooling of data between insurance companies and the
government as ‘building and sharing claims histories can help in
aligning pricing decisions with actuarial calculations, thereby
reducing price’.
The report added an investment of 1.65 million dollars would
be needed to develop the micro-insurance business and tap the
growth potential of micro-insurance in India.
LIFE INSURANCE AGENTS MAY
GET SERVICE TAX RELIEF
 SOURCE : BUSINESS STANDARD
 DATE : 25 FEBRUARY,2008
Life insurance agents are likely to be exempted from payment of
sevice tax if their total annual commission income does not exceed Rs. 8
lakhs. Though in principle the notification dated March 1, 2005,
exempts from tax, service of aggregate value not exceeding Rs.8 lakh in
a year (which brings into the ambit around 90 percent of the 20 lakh life
insurance agents in a country), the benefit of the exemption is not
extended to insurance companies that pay the tax on behalf of their
agents.
According to industry sources, this differential treatment of the life
insurance auxiliary service may get corrected in the 2008-09 Union
Budget. For the service tax on insurance commission (service rendered
by an insurance agent to an insurer), the responsibility of paying the tax
rests with the insurance company (service recipients).
The benefits of exemption up to the threshold limit is not extended to
such cases where service tax is paid by the recipient of service on
behalf of the provider of service. While the responsibility of actual
payment of service tax lies with the service recipient (insurance
company), the benefit of exemption up to the threshold limit is not
savailable to insurance agents (and insurance companies). In the case
of life insurance agents, the service tax (12.36 percent) is paid by
insurance companies which then deduct the amount from the
commission of their agents. So even though most life insurance
agents in principle are exempted from service tax (as the
commission earnings are below Rs.8 lakh), they are not getting the
benefit as it is not extended to insurance companies.
Life insurers have made submission to the finance ministry, requesting
that “the benefit of service tax exempted below the threshold limit of
Rs. 8,00,000 in a year may be extended to all service providers such
as insurance agents, not withstanding that the actual remittance of
the tax is made by the principle, namely, the insurance company,
which is in fact a procedure to ensure efficiency of collection”
Finally, says Sachin Menon , Executive Director, of
PricewaterhouseCooper ,”Its Unfair to deny the threshold percent
to insurance agents who constitute 90 percent of the total. agent
across the country.”
 CENVAT CREDIT
 CENVAT CREDIT means Central Value Added
Tax.Service Tax payable by an assesse shall be
subject to assesse availing of Cenvat Credit.
Output service provider shall be allowed to take
credit of the tax paid on the inputs and input
service only after he makes the payment for the
value of input service or Inputs/Capital Goods or
the Service Tax/Excise Duties payable thereon as
indicated in the bill/ invoice of the Input service
provider