In what could be a major relief to policy holders, LIC and other insurers are likely to absorb the 10% service tax and 2% education cess at least this fiscal.
Insurers are, however, waiting for the finance ministry to clarify on certain points of the service tax.
“We will not charge service tax from policy holders this fiscal,” LIC chairman RN Bhardwaj said, adding it would be adjusted in the commission that is paid to agents. He declined to give any figure of the total outgo that LIC was contemplating from service tax and education cess payment as it could be assessed only after the end of the fiscal year on March 31.
An official of ING Vysya also confirmed that the new tax could not be charged from consumers due to certain administrative problems.
The service tax, which was extended to the risk component of insurance policies in the last budget, will have to be paid by the consumer from the next fiscal, industry sources said.
There has been some ambiguity when the finance minister proposed a service tax on risk premium in the Budget for 2004-05.