Budget 2016: Service tax on single premium annuity plan cut

Budget 2016 proposes to reduce service tax burden on single premium annuity plans. Called the Immediate Annuity plans in the insurance industry, the composition rate of service tax on single premium annuity (insurance) policies is proposed to be reduced from 3.5% to 1.4% of the premium charged. This will be in cases where the amount allocated for investment, or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service, with effect from 1st April, 2016. Effectively, returns in the hand of investor will be high.

These single premium annuity policies ask for a lump sum payment and then the insurer starts paying annuity (regular income) for lifetime. One may invest in such single premium annuity plans of most of the life insurers. They provide - Guaranteed income for as long as you/your partner lives, wide range of annuity options to cater to your diverse needs, flexibility to choose frequency of annuity from monthly/quarterly/half-yearly/annual options.

Also, when NPS matures, the annuity is to be provided by the life insurers through such annuity schemes. The NPS holder has to take the corpus to a life insurer and buy a single premium annuity scheme from any of them to start getting lifetime pension ( annuity) from them.

Also, it has been proposed that the service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India be exempted from Service Tax with effect from 1st April, 2016.