Service Tax on General Insurance Services

General insurance servicesGeneral Insurance Business  means fire, marine or miscellaneous insurance business, whether carried on singly or in combination of one or more of them but does not include capital redemption business and annuity certain business.

Insurer – Means any person carrying on the general insurance business and includes a re- insurer.

Policy holder – It includes a person to whom the whole of the interest of the policy holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition.

In this context, the details in respect of tax payment are as under:

Date from which such service is taxable – 1st July, 1994

Service provider – An insurer including re- insurer carrying on general insurance business

Service receiver – A policy holder or any person

Scope of taxable service – Any service provided or to be provided to a policy holder or any person, by an insurer, including re – insurer carrying on general insurance business in relation to general insurance business.

Insurance services provided by Government departments – Insurance services provided by Government departments are taxable and hence there is no exemption.

Exemptions & Exclusions

1.      No service tax on commission deducted from premium paid by insurer to re- insurer – Insurance Company is required to re- insure part of its risk with another insurer for which the insurance company pays premium to re- insurer. Service tax is paid by re- insurer on entire premium. While paying the premium, the insurance company deducts some amount for meeting the administrative expenses i.e. it is sharing of expenses, though it is termed as premium. This is not a service and hence no service tax is payable on this service.

2.      Exemption to specified schemes – Certain schemes like personal accident social security scheme, crop insurance, cattle insurance, janata policy, export credit insurance, insurance on export of goods from India are exempt from payment of service tax.

3.      Exemption to certain specific schemes relating to agriculture – Cattle insurance services are exempt, National Agricultural Insurance Scheme, Seed Crop Insurance, Farm Income Insurance Scheme are also exempt from service tax payment.

4.      Group personal accident schemes – Group personal accident policy for self employed women is exempt under service tax.

5.      Exemption to insurance WBCIS and MNAIS scheme – General Insurance service provided under Weather Based Crop Insurance Scheme (WBCIS) and Modified National Agricultural Insurance Scheme (MNAIS) are also exempt from service tax payment.

6.      Exemption to Rashtriya Swasthya Bima Yojana – General Insurance services in respect of this Yojana has also been exempted from service tax payment.

7.      Exemption to Universal Health Insurance Scheme –General Insurance Business service provided under Universal Health Insurance Scheme is also exempt from service tax payment.

Overriding Special Provisions for Payment of ‘amount’ in respect of Insurance Services-

  • In respect of General insurance services or life insurance services ‘amount’ equal to 20% of Cenvat Credit availed on inputs and input services in the month of Cenvat Credit Rules as inserted w.e.f. 1/04/2011.
  • In respect of banking service, the Bank or NBFC is required to pay ‘amount’ equal to 50% of cenvat credit rules as inserted w.e.f. 1/04/2011.

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