Life insurers reeling under the stringent norms effected by Insurance Regulatory & Development Authority (Irda) since September 2010 on unit-linked insurance plans (Ulips) are once again feeling the pinch as the government has raised service tax on Ulips.

Customers are paying higher premium for insurance products from this month after the new notification regarding service tax for the insurance products is in place.

The central government issued a notification on April 25, following which the insurers have started amending premiums for the products.

According to amended rules, Ulips have been charged the most, resulting in a sharp reduction in investable amount. Earlier, fund management charges (FMC) and mortality charges were only taxable at a rate of 10.3%.

While that has remained unchanged the government has asked the insurers to charge premium allocation charges or front end loading, policy administration charges and switching and redirection charges at a rate of 10.3%. Earlier, a customer did not have to pay any taxes on these three charges.

Nageswara Rao, CEO & MD of IDBI Federal Life Insurance, said that the allocation amount or the investable amount will reduce after the new regulation is effective. ?While there may not be an increase in premiums, investable amount will reduce after taxes are deducted.?

As the items like premium allocation charges and policy administration charges in case of unit linked policies vary from product to product, it is difficult for the insurers to assess an average reduction in the investable amount.

?In case of Ulips the increase will be significant although no number can be attributed to that,? said V Viswanand director (product development) of Max New York Life.

There has also been a hike in the premium for endowment products as the service tax on such products increased from 1.03% to 1.545%.

Earlier there were no service tax on the annuity products. They will be loaded with a service tax of 1.545% after the new guidelines are in place. Only term products are left untouched where the customer can continue to pay 10.3% service tax.

Many insurers feel that such an increase will have a negative impact on buyers. ?Collection of new premium may not come down because of the new guidelines, but any such move will not be viewed positively by the customers,? said Vishwanand.