Insurance is like a spare tyre. You may not require it, but not having one is not an option.
Insurance is like a spare tyre. You may not require it, but not having one is not an option.
  • Impact of Service Tax On Auto Insurance Premiums

    Service tax is a form of Indirect Tax levied by the government on certain service providers but, in reality, is paid by the customers. It was introduced under the Finance Act of 1994 with only three services under its course of action. However, its ambit was expanded in the 2012 budget to include hundreds of services offered by hotels, inns, air-conditioned restaurants, educational institutions, and various agencies and firms.

    • The service tax is levied on a cash-payment basis on individual service providers, and on an accrual basis on larger companies.
    • The service provider pays the service tax to the government and recovers it from the customers.

    Exemptions From Service Tax

    All services provided in the state of Jammu and Kashmir are exempted from service tax. However, there are other areas where this tax is not applicable, as well. This is referred to as the negative list.

    This negative list of services is explained under Section 66D of the Finance Act, 1994, and has been amended by the Finance Act of 2016. Some of the services included in the negative list are as follows:

    • Small scale industries with a low turnover
    • Services provided to global agencies, the UN and Special Economic Zones (SEZ)
    • Services offered by the Government or such local authorities
    • Provisions from the RBI
    • Services offered by a foreign diplomat in India
    • Services associated with agricultural produce
    • Goods trade
    • Cost of commodities utilised for the manufacture of goods, with the exception of alcohol for human consumption
    • Selling of print media advertisement space
    • Toll charges
    • Gambling, betting or lottery
    • Electricity transmission services
    • Renting of spaces for residential purposes
    • Specific financial services offered by banks
    • Specific services related to transportation of passengers and goods
    • Funeral or mortuary services

    Service Tax On Auto Insurance Premiums

    Car owners have been citing flimsy excuses like the unavailability of extra income for not purchasing comprehensive car insurance policies. The budget of 2016 has given them one more reason to avoid insuring their vehicle with appropriate cover.

    In the budget, the Finance Minister proposed to impose the Krishi Kalyan Cess on services that are under the scope of service tax, including motor insurances. The cess, that is imposed at 0.5%, inflated the service tax rate from the pre-existent value of 14.5% to 15%. Initially, the rate of service tax was 12.36% on insurance products. The budget of 2015 had increased it to 14%, and later that year, the Swachh Bharat Cess had expanded it further to stand at 14.5%.

    Impact Of Increased Service Tax Rates On Car Insurance

    The new service tax rates have become applicable from 1st June, 2016, and insurance providers have intimated their policyholders regarding the change in insurance premiums after the increase in service tax. All insurance policies that were inclusive of service tax have seen a surge in premiums borne by the policyholders. But it should be emphasized that the rise in costs should not make you shy away from purchasing an appropriate car insurance coverage for your vehicle. Insurance is necessary as it is a critical aspect of financial planning, and it safeguards you from unprecedented expenses.

    It should be noted that the hike in service tax rates has only heightened the car insurance premiums by a marginal amount. This is applicable to policies with larger premiums, as well.

    The Necessity Of Car Insurance

    A basic level of car insurance is mandated by law in the country. However, every car owner should explore options to enhance their basic auto insurance package, and acquire adequate coverage to protect themselves financially in the face of unforeseen incidents like accidents, natural calamities, or theft.

    The decision to purchase a suitable auto insurance should accompany the resolution to buy a car. If your car insurance is due for renewal, you should take all necessary steps to update it at the earliest, irrespective of the rise in premiums due to service tax.

    Read More On Car Insurance

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