Insurers seek service tax waiver on sub Rs 4-lakh agent commission
March, 21st 2007
Council to approach Finance Ministry for relief
Mumbai March 20 Insurance companies plan to approach the Ministry of Finance for tax exemption on the service tax paid on agents' commissions. The Life Insurance Council a self-regulatory body representing all life insurers will submit a memorandum to the Finance Ministry seeking tax exemption to agents who earn less than Rs 4 lakh as commission.
Mr S.V. Mony, Secretary General, Life Insurance Council, said that now only those individuals who earn more than Rs 4 lakh have to pay service tax of 12.24 per cent.
"Insurance agents are the only individuals who have to pay service tax on the commissions they receive, irrespective of the amount. So, even a person who annually earns Rs 5,000 as commission has to pay service tax," Mr Mony said. He said that 90 per cent of insurance agents fall below the Rs 4-lakh category.
Insurance companies pay service tax on behalf of their agents. Mr Mony estimates that the insurance industry makes an annual payment of Rs 1,000 crore as sevice tax for its 15 lakh agents. The LIC pays the bulk of the service tax as it has 11 lakh agents.
The provision can be rectified, if the Finance Ministry issues a notification, Mr Mony said
Will reduce costs
A senior official at a public sector insurance company said the exemption would help reduce the expenses and increase the surplus on the policyholders' funds. "It will effectively help insurance companies give policyholders a bigger bonus," said the official.
Among its other initiatives, the Life Insurance Council also plans to provide crucial statistical and research data for the benefit of policyholders, insurance companies and the regulator the Insurance Regulatory and Development Authority.
"We are collecting aggregated data that will be categorised company-wise. Customers will, for instance, have access to information about the fund performance of their policies," said Mr Mony.
Policyholders can also find out about the various types of policies and data about the persistency ratio (company's percentage of insurance policies remaining in force) and the lapse ratio (ratio of terminated policies due to failure of premium payment by the insured) as well as the losses or profits made by insurance companies.