Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Life insurance, healthcare services to become costlier

Life insurance, healthcare services to become costlier
Comment E-mail Print Share
First Published: Mon, Feb 28 2011. 09 09 PM IST
Updated: Mon, Feb 28 2011. 09 09 PM IST
The cost of life insurance and healthcare may go up with Budget 2011 bringing services offered by hospitals and life insurance companies under the service tax regime.
The move is expected to result in a higher premium for all kinds of insurance products barring term plans—including products such as endowment and pension plans—as the companies are likely to pass on the additional cost to buyers.
“There is a service tax on traditional policies even now on the risk cover. Currently, it is at 1%. However, according to the Budget proposal, this service tax will increase to 1.5% as is the case of Ulips (unit-linked insurance products),” said Rajesh Sud, managing director and chief executive, Max New York Life Insurance Co. Ltd. “It will be levied on the entire premium in case of traditional policies.”
Sud said the move went against the general expectation that finance minister Pranab Mukherjee will provide more tax incentives to promote long-term savings and insurance.
Kartik Jhaveri, founder and director, Transcend Consulting, a private financial planning and wealth management firm, also said the move was unanticipated.
“Insurance companies are likely to pass at least a part of the burden on to consumers,” Jhaveri said. “The move may also prove advantageous to mutual fund companies.”
P. Nandagopal, managing director and chief executive at IndiaFirst Life Insurance Co. Pvt. Ltd, said the impact of the proposed changes would likely be marginal.
“The tax will not be levied on the entire premium and hence, the impact will be less,” Nandagopal said. “But taxing of the investment component is a tedious process and we have to wait for the final guidelines for calculating the actual impact on policy holders.”
Healthcare costs are also set to rise, with Mukherjee bringing all services provided by hospitals with 25 or more beds and with air-conditioning in the service tax net.
Until now, service tax on hospital services was charged only from customers whose payments were made through an insurance company or a business entity. But the budget proposes that the tax also be levied on customers who pay themselves.
The service tax rate remains 10% but a 50% abatement means the effective rate will be 5%.
The step removes an anomaly in the tax structure.
“Earlier there was a service tax levied on cashless facility on health insurance policies. So while a customer who paid for hospitalisation expenses did not pay any service tax, an insured individual availing the cashless benefit would have to pay a service tax,” said Bhargav Dasgupta, managing director and chief executive, ICICI Lombard GIC. “This budget has done away with that anomaly. However the bad news is that healthcare costs in India will increase.”
• We were expecting an increase in excise duty across categories. However, there has been a status quo maintained in excise duty in most categories against market expectations of an increase.
• the fact that foreigners can invest in mutual fundS is a positive and we as an industry would have to gear up and activate the necessary machinery to take advantage.
S Naren, CIO-Equity
• The budget did not outline anything on a separate tax exemption limit for life insurance. We expected a separate limit of Rs.50,000 for life insurance premiums.
• There are changes proposed in the levy of service tax. On both conventional plans as well as Ulips, increased service tax becomes effectively borne by the policyholder.
Amitabh Chaudhry, MD and CEO, HDFC Standard Life
• Today’s Budget is a fine balancing act between the considerations of fiscal consolidation and growth. A marginal increase in indirect taxes and more liberalization of FII investments in corporate bonds augur well for industry and markets.
• Net market borrowing of the government at Rs.3.43 trillion in FY12 is a big comfort for banks.
MD Mallya, CMD, Bank of Baroda
• Housing loans limit raised to Rs.25 lakh from Rs.20 lakh. Increase in this limit is in line with the increase in the property rates.
• Mortgage Guarantee Fund for housing loans to Low Income Group and Economically Weaker Section will provide the required safety cushion to financial institutions.
Pranab Datta, vice chairman and managing director, Knight Frank India Pvt. Ltd
Comment E-mail Print Share
First Published: Mon, Feb 28 2011. 09 09 PM IST