Micro insurance players may escape service tax
The proposal is still being looked at, especially in view of giving a major push to social security in low income groups.
By Deepshikha Sikarwar, TNN |
NEW DELHI: MICRO insurance service providers need not lose heart: Budget 2007 may not have granted their wish, but the government is still examining exemption for micro insurance products from service tax. “We have received a reference seeking exemption for micro insurance products. It is being looked into,” a finance ministry official said.
Since the micro insurance products are targeted at low income groups in the unorganised sector such as artisans, craftsmen and farmers, the industry had made strong pitch for exempting them from service tax.
The proposal is still being looked at, especially in view of giving a major push to social security in low income groups. The government had raised the service exemption limit to Rs 8 lakh of turnover in this Budget to give relief to small service providers. However, insurance companies that are large service providers cannot draw benefit from the exemption even for micro insurance products.
Recently, the FM announced a new scheme, Aam Admi Bima Yojana, to extend death and disability insurance cover through LIC for the unorganised sector. Financial sector is one of the largest contributors to the service tax kitty that is growing at 64%. Service tax adds 12% to the cost of services and the exemption would benefit workers from the unorganised sector.
The government levies service tax on mortality premium which is very small in micro insurance products. In some cases, the premium is as low as Rs 500. The revenue loss on account of exemption to the products may not be huge, especially in comparison to the benefit derived by those targeted.
Micro insurance products provide cover in the range of Rs 5,000-50,000. There are products in various categories such as health insurance, personal accident cover, crop insurance and insurance for equipment such as looms in case of weavers. However, the penetration level of micro insurance products is limited. As per present estimates, the coverage of the products is limited to 10 million people.
deepshikha.sikarwar@timesgroup.com
Since the micro insurance products are targeted at low income groups in the unorganised sector such as artisans, craftsmen and farmers, the industry had made strong pitch for exempting them from service tax.
The proposal is still being looked at, especially in view of giving a major push to social security in low income groups. The government had raised the service exemption limit to Rs 8 lakh of turnover in this Budget to give relief to small service providers. However, insurance companies that are large service providers cannot draw benefit from the exemption even for micro insurance products.
Recently, the FM announced a new scheme, Aam Admi Bima Yojana, to extend death and disability insurance cover through LIC for the unorganised sector. Financial sector is one of the largest contributors to the service tax kitty that is growing at 64%. Service tax adds 12% to the cost of services and the exemption would benefit workers from the unorganised sector.
The government levies service tax on mortality premium which is very small in micro insurance products. In some cases, the premium is as low as Rs 500. The revenue loss on account of exemption to the products may not be huge, especially in comparison to the benefit derived by those targeted.
Micro insurance products provide cover in the range of Rs 5,000-50,000. There are products in various categories such as health insurance, personal accident cover, crop insurance and insurance for equipment such as looms in case of weavers. However, the penetration level of micro insurance products is limited. As per present estimates, the coverage of the products is limited to 10 million people.
deepshikha.sikarwar@timesgroup.com
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