If general insurers have their way, and if the quantum of premium one pays to buy a cover is less than Rs 1,000, the Centre may not collect service tax that is now pegged at 12.24%.
In its proposal for the Union Budget 2007-08, the General Insurance Council has requested the finance ministry to enhance the upper limit for waiver of service tax on premium payment from Rs 50 to Rs 1000 for a single transaction. The council is a representative body of general insurers.
General insurers have also urged the FM to increase the time for remittance of service tax from five days to 15, after every month end.
Additionally, the council, which has routed these proposals through IRDA, has requested the government to allow non-life insurance exemption on capital gains tax for all securities including bonds.
It has also asked for the same income tax structure that is applicable for life insurers. Life companies pay income tax of 12.5%. For general insurers the rate is 33.66%. Talking on the proposal of service tax waiver submitted by the council, K N Bhandari, general secretary at General Insurance Council, told ET, Currently, the government does not collect any service tax if the premium paid by a policy holder per transaction is below Rs 50. This threshold limit was notified in 1994 and has not been revised since then.
The Centre is propagating the need for insurance and there is a constant endeavour to maximise its penetration. With this in view, we have requested the Centre to increase the threshold limit of Rs 50 to at least Rs 1,000. This is because policy holders paying a premium of less than Rs 1,000 are mostly individuals and persons from the lower segment for whom even payment of premium is a challenge, explained Mr Bhandari.
The move, according to the council, will help in bringing within its fold more people by reducing their cost of procuring covers. It will also decrease administrative and compliance cost for the company, thereby providing the required boost to the industry. Explaining the issue of capital gains exemption, Mr Bhandari said, General insurers can claim exemption under long-term capital gains on equity shares. However, no such exemption is available for sale of bonds and other financial instruments.