INSURANCE AUXILLIARY SERVICES

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INSURANCE

InsuranceInsurance is a method of spreading over a largenumber of persons, a possible financial loss,which can not be borne by an individual.

InsurerInsurer means any person carrying on generalinsurance business or life insurance business inIndia.

InsuredInsuredis any individual who takes theinsurance policy from the insurance company

it is the same person whose risk has beencovered.


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SERVICE TAX IN INDIA

The tax reforms committee headed by

Dr.Raja.J.Chelliah recognized the revenue

potential of the service sector in India andrecommended 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.


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NEEDS FOR SERVICE TAX

It is prime responsibility of the Government to fulfill the increasingdevelopmental needs of the country and its people

Governments primary sources of revenue are direct and indirecttaxes.

While the largest component of GDP in the country comes from theService 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 StateGovernment,most of the services are not directly subject to taxation.

Extending the tax to the service sector was not only to ensureneutrality and horizontal equity in taxation but also to broaden thetax base and improve revenue productivity of tax system.


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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 riskassessment, claim settlement, survey and loss assessment.


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CONCEPTS RELATED TO INSURANCE

AUXILIARY

ACTUARY

INTERMEDIARY

INSURANCE BROKER

INSURANCE CONSULTANTS

REINSURERS

SURVEYORS

LOSS ASSESSORS


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TAXABLE SERVICE RELATED TO

INSURANCE

Taxable Service means any service provided to apolicyholder or insurer by an actuary or intermediary orinsurance intermediary or insurance agent, in relation toinsurance auxiliary service.

Services covered in this category are the services provided bythe insurance agents to the insurance company in relation tomarketing 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 servicesprovided prior to this date will not liable to tax even thoughpayment is made on or after the 16th July 2001.


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ESSENTIAL INGREDIENTSESSENTIAL INGREDIENTS

The services must be provided by:

an actuary or

an intermediary or insurance intermediary, or

an insurance agent

INSURANCE AUXILIARY SERVICE RELATES TOGIC AND LIC WHICH INCLUDES :

i) Risk assessment

ii) Claim assessment

iii) Survey

iv) Loss assessmentSSS


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INTERMEDIARY LIABLE TOINTERMEDIARY LIABLE TO

PAY TAXPAY 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 OFINSURANCE 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.


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TAXABLETAXABLE VALUEVALUE

Value of taxable service shall be the gross amount charged by the serviceprovider for such service rendered by him, includes the commission, fee orany other sum received by actuary or intermediary or insurance intermediaryor insurance agent from insurer.

Rule 6 of the Service Tax Rules, 1994, provides for payment of Service Taxonly on the amount received and not on the amount raised for the servicesprovided. As such Service Tax is payable only on the amount actuallyreceived.

EXEMPTIONS AND EXCLUSIONSEXEMPTIONS 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 notliable to tax even though payment is made on or after 16th july 2001.


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TAXABLE SERVICE RELATINGTAXABLE SERVICE RELATING

TO LIFE INSURANCETO LIFE INSURANCE

Taxable service means any service provided to a policyholder, by aninsurer carrying on life insurance business in relation to life insurancebusiness. Though the service is provided by the life of insuranceagents, service tax is not payable by them, but by the insurancecompanies. Tax is payable in respect of old policies also. (Section65(90) (zx) of Finance Act 1944 as amended). Value of taxableservice shall be the gross amount charged by the service provider forsuch service rendered by him.

EXEMPTIONS AND EXCLUSIONSEXEMPTIONS AND EXCLUSIONS

It has been decided to exempt the service tax leviable on lifeinsurance business (as per Notification No. 9/2002 ST dated 1-8-2002) As a result , service tax is not payable on the service providedby an insurer to a policy holder in relation to life insurance business.


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PERSONS RESPONSIBLE FORPERSONS RESPONSIBLE FOR

COLLECTING SERVICE TAXCOLLECTING SERVICE TAX The Chairman-cum-Management Director of the National

Insurance Company Limited/ New India AssuranceCompany Limited/Oriental Insurance CompanyLimited/United India Insurance Company Limited.

Any other person carrying on general insurance business andwho has obtained a certificate of registration under sec.3 ofinsurance act, 1938.

Insurance auxiliary services concerning General insurance

business and Insurance auxiliary services concerning Lifeinsurance business include services provided to a policyholder or any person or an insurer, including a re-insurer.


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STATUTARY COVERAGESTATUTARY COVERAGE

FOR GENERAL INSURANCE:

Service to a policy holder or any person or insurer, includingre-insurer, by an actuary, or intermediary or insuranceintermediary or insurance agent, in relation to insuranceauxiliary services concerning general insurance business.

It includes Risk assessment, claim settlement, survey and lossassessment [section 65(55)]. In respect of services provided by an insurance agent, the

insurance company is the person liable for paying the servicetax. The service tax is payable on commission payable to theinsurance agent. However, the exemption available to small

service providers cannot be availed by insurance agent.


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FOR LIFE INSURANCEFOR LIFE INSURANCE

Service to a policy holder or any person or insurer,including re-insurer, by an actuary, or intermediary orinsurance intermediary or insurance agent, in relation toinsurance auxiliary services concerning life insurance

business.

It includes Risk assessment, claim settlement, survey andloss assessment [section 65(55)].

In respect of services provided by an insurance agent,theinsurance company is the person liable for paying theservice tax.


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EXEMPT MICRO-INSURANCEEXEMPT MICRO-INSURANCE

FROM SERVICE TAXFROM SERVICE TAX

SOURCE : THE ECONOMIC TIMESSOURCE : THE ECONOMIC TIMES

DATE : 6TH JUNE, 2007DATE : 6TH JUNE, 2007

The Government should exempt micro-insurance frompayment of Service Tax to make products cheaper andencourage penetration of insurance services in low incomerural and social sectors, a UN report has suggested.

The service tax 10.2 per cent on premiums adds to theprice 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 UNDEVELOPMENT PROGRAMME (UNDP) report said.


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Micro-insurance sector has the potential to generate a businessof 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 Suggestedpartnership of insurance companies with micro-financeinstitutions for providing such products to the rural populationaccording to their specific needs.

Insurance products made for the urban population cannot be

suitable for their rural counterparts. They may need insurancefor a single tree or insurance against snakebite, the things thataffect them more frequently and directly. The report suggestedpooling of data between insurance companies and thegovernment as building and sharing claims histories can help inaligning pricing decisions with actuarial calculations, therebyreducing price.

The report added an investment of 1.65 million dollars wouldbe needed to develop the micro-insurance business and tap thegrowth potential of micro-insurance in India.


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LIFE INSURANCE AGENTS MAYLIFE INSURANCE AGENTS MAY

GET SERVICE TAX RELIEFGET SERVICE TAX RELIEF SOURCE : BUSINESS STANDARDSOURCE : BUSINESS STANDARD DATE : 25 FEBRUARY,2008DATE : 25 FEBRUARY,2008

Life insurance agents are likely to be exempted from payment ofsevice 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 ina year (which brings into the ambit around 90 percent of the 20 lakh lifeinsurance agents in a country), the benefit of the exemption is notextended to insurance companies that pay the tax on behalf of theiragents.

According to industry sources, this differential treatment of the life

insurance auxiliary service may get corrected in the 2008-09 UnionBudget. For the service tax on insurance commission (service renderedby an insurance agent to an insurer), the responsibility of paying the taxrests with the insurance company (service recipients).


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The benefits of exemption up to the threshold limit is not extended tosuch cases where service tax is paid by the recipient of service onbehalf of the provider of service. While the responsibility of actualpayment of service tax lies with the service recipient (insurance

company), the benefit of exemption up to the threshold limit is notsavailable to insurance agents (and insurance companies). In the caseof life insurance agents, the service tax (12.36 percent) is paid byinsurance companies which then deduct the amount from thecommission of their agents. So even though most life insuranceagents in principle are exempted from service tax (as thecommission earnings are below Rs.8 lakh), they are not getting thebenefit as it is not extended to insurance companies.

Life insurers have made submission to the finance ministry, requestingthat the benefit of service tax exempted below the threshold limit ofRs. 8,00,000 in a year may be extended to all service providers suchas insurance agents, not withstanding that the actual remittance ofthe tax is made by the principle, namely, the insurance company,

which is in fact a procedure to ensure efficiency of collectionFinally, says Sachin Menon , Executive Director, ofPricewaterhouseCooper ,Its Unfair to deny the threshold percentto insurance agents who constitute 90 percent of the total. agentacross the country.


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CENVAT CREDITCENVAT CREDIT

CENVAT CREDITCENVAT CREDIT means Central Value AddedTax.Service Tax payable by an assesse shall besubject to assesse availing of Cenvat Credit.Output service provider shall be allowed to takecredit of the tax paid on the inputs and inputservice only after he makes the payment for thevalue of input service or Inputs/Capital Goods or

the Service Tax/Excise Duties payable thereon asindicated in the bill/ invoice of the Input service

provider


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INSURANCE AUXILLIARY SERVICES

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