Ulips to cost less on service tax exemption

Last Updated: Sun, Feb 28, 2010 05:19 hrs

With the government exempting service tax on all other charges, except the fund management fee (FMC), on unit-linked insurance plans (Ulips), the cost of this product is likely to come down.

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At present, service tax is levied on other charges such as premium allocation and administrative charges. This will bring Ulips on a par with mutual fund products. The service tax on FMC for Ulips has been brought on the same level as for the mutual fund industry.

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Service tax will be levied on FMC, which is capped at 135 basis points. Other charges such as allocation, policy administration will be exempted from service tax.

Insurers expect an increase of 40-50 basis points on policyholders’ internal rate of return and a reduction in the cost of Ulips.

"The service tax on Ulips has been brought to the same level as the mutual fund industry. This will reduce the cost of Ulips further," said Kamesh Goyal Country Manager Allianz and MD and CEO Bajaj Allianz Life Insurance.

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