Budget 2011- High service tax on life policy to lower returns

The government today proposed to increase the service tax on life insurance policies to 1.5 per cent from 1 per cent, a move that would increase the premium cost for policyholders.  “It is being provided that tax shall be charged in the portion of the premium… the composition rate is also being increased from 1 per cent to 1.5 per cent,” Finance Minister Pranab Mukherjee said in his 2011-12 Budget speech.

“In case of traditional endowment plans, the service tax rate has been increased from 1.03 per cent to 1.545 per cent.

Although the increase is marginal, there could be some increase in premium or returns might be lowered,” Max New York Life Insurance CEO & Managing Director, Rajesh Sud said.