Come October, LIC policies will come at a greater cost. Life Insurance Corporation, is all set to levy service tax of around 3 per cent on all non-unit-linked products beginning October 1.
This means if the annual premium for your money-back policy from LIC is Rs 10 lakh, you will have to pay an additional Rs 30,000.
While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on its popular endowment and money-back plans.
From October, however, all LIC policies will attract a separate service tax, says a senior company official. LIC collected Rs 1,87,000 crore as premiums towards its non-unit linked polices in 2011-12.
In a recent announcement, IRDA mandated that service tax shall not be included in the contractual premium, but collected from policyholder separately.
“We are currently absorbing the service tax as a part of the policyholder’s funds, as the share capital of the Government (which is our owner) is just around Rs 100 crore,” said a LIC official.
He further explained that when service tax is charged separately, LIC may be able to pay higher bonuses on the policies.
All along LIC has been paying the service tax from the money in the policyholders’ account (which holds the premium collected and income from investments). It is the surplus in this account that is declared as bonus on traditional plans.
