India Inc will have to cough up a little more to pay premiums on non-tariff general insurance covers as insurers have decided to pass on the burden of service tax on re-insurance to customers. The burden can be in the region of Rs 1,000 crore (Rs 10 billion).
Individuals will have to pay more for health, home, overseas travel and student medical insurance covers, while companies will see premium rates going up for marine, corporate and liability insurance.
For the customers, it will be a double whammy as they have already been paying service tax on insurance policies bought. Now, general insurers do not want to absorb the service tax on re-insurance.
The government brought re-insurance services in the service tax next from May 1 in step with the provisions of Budget 2006-07. The rate has also been raised from 10 per cent to 12 per cent. Including the surcharge, the service tax burden works out to 12.24 per cent.
The sole domestic re-insurer, General Insurance Corporation, has decided to pass on the service tax liability to general insurers. About 26 per cent of the general insurance risks underwritten in India are re-insured with GIC.
The rest of the re-insurance contracts entered into with foreign re-insurers like Swiss Re and Munich Re are also subject to service tax. Since foreign re-insurers cannot be taxed in India, the onus is on general insurers to bear the service tax burden.
The total premium collected by all general insurance companies in 2005-06 was over Rs 20,000 crore (RS 200 billion), up from over Rs 18,000 crore (Rs 180 billion) a year earlier.
General insurance companies are required to re-insure a minimum 20 per cent of the risks underwritten by them and they can decide on the remaining risks depending on their risk appetite.
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