Life insurers unhappy over tax levy on ULIPs

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Friday , February 29, 2008 at 2315 hrs Life insurers have expressed their unhappiness over the new levy of service tax the government intends to impose on the investment portion of Unit Linked Insurance Policies (ULIPs). ULIPs has been a major contributor to life insurers’ income so far and the move could make it less attractive for investors.

“True, it will increase costs marginally, but these will be absorbed,’’ said Gaurang Shah, managing director, Kotak Life Insurance. The move was largely to bring at par asset management units of ULIP with that of mutual funds, the finance minister said while announcing the Union Budget on Friday.

Vikram Mehmi, president & CEO, Birla Sunlife Insurance said that the primary focus of the Budget is on rural India. With regards to the life insurance sector, applicability of service tax on fund management charges for ULIP Fund needs more analysis to ensure that only relevant portion is taxed, unless this leads to life cover becoming disproportionately expensive or it leads to slowing down of growth in the industry, he said. According to Kamesh Goyal, managing director, Bajaj Allianz Life Insurance, though the budgetary proposals in the form of additional deduction of Rs 15,000 under Section 80D being allowed to an individual who pays medical insurance premium for his/her parents may boost health insurance to some extent, it may not cover a large segment of the insured population.