In the budget of 2016 Finance Minister Mr. Arun Jatley has proposed to impose a new cess called Krishi Kalyan Cess on the all the services which come under the purview of service tax, including insurance. New Krishi Kalyan Cess will be imposed @.5%. This will increase the current servic tax rate from 14.5% to 15%.
Earlier service tax was 12.36% on all the service including insurance. It was then increased in Budget 2015 to 14%. In Nov 2015, it again increased by .5% due to Swachh Bharat Cess imposed on all the services.
New Rates of Service tax after Krishi Kalyan Cess will be
Due to different types of the insurance products like term plans and other saving linked insurance plans like Endowment plans and money back plans service tax rates on insurance premium are different according to the product. New rates applicable will be given as follows:
When will be new rates of ST effective?
The new rate of ST will be effective from 01/06/2016 after the notification of the finance ministry in this regard. Each insurance company will issue separate circular regarding the increase of taxes on the insurance premium, and may notify the policyholder with different means.
Will it affect all the policies, old or new?
No, it will not be applicable to all the policies. Premium in the policies which were earlier issued without separate servic tax will be same. But, policies which were issued with separate servicĂ« tax, the premium will increase after the notification of new service tax rules.