INSURANCE AUXILIARY SERVICE

 

Date of Introduction:  16.7.2001 vide Notification No.4/2001-ST dt.09.07.2001.

 

Definition:

 

As per section 65(31), “insurance auxiliary service” means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business and includes risk assessment, claim settlement, survey and loss assessment. Taxable event and scope of service:

Taxable service means any service provided to a policyholder or insurer by an actuary or intermediary or insurance intermediary or insurance agent, in relation to insurance auxiliary service.

 

(Section 65(72) (zl) of Finance Act, 1994 as amended) “Actuary” has a meaning assigned to it in clause (1) of section 2 of Insurance Act, 1938 (4 of 1938). (Section 65(1) of Finance Act, 1994 as amended)

 

“Intermediary or Insurance Intermediary” has the meaning assigned to it in sub clause (f) of clause (1) of section 2 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).

 

(Section 65(32) of Finance Act, 1994 as amended) “Insurance Agent” has the meaning assigned to it in clause (10) of section 2 of the Insurance Act, 1938 (4 of 1938). (Section 65(30) of Finance Act, 1994 as amended)

 

“Insurer” means any person carrying on the General Insurance Business in India. (Section 65(33) of Finance Act, 1994 as amended)

 

“General Insurance Business” has the meaning assigned to it in clause (g) of Section 3 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972).

 

(Section 65(27) of Finance Act, 1994 as amended) Services covered in this category are the services provided by the insurance agents to the insurance company in relation to marketing of insurance policies. They also provide service to the policyholder by providing information/advice on the types of insurance policies, processing of documentation, remitting of insurance premium, etc. Actuarial services are provided by the actuaries to the insurance companies. They cover diverse fields such as calculating insurance risks and premia, insurance claims adjustment services such as services of investigating claims, determining the amount of loss or damages covered by the insurance policies and negotiating settlements, services of examining claims which have been investigated and authorisation of payments and damage assessment services, administration of insurance including salvage administration and insurance consultancy services. It may be emphasized that only such services are taxable which are in relation to general insurance business such as motor vehicle insurance, insurance of buildings and other properties, marine insurance, fire insurance and other miscellaneous insurance. Services provided in relation to life insurance are not taxable.

 

The service providers are insurance agents, insurance surveyors and loss adjusters, actuaries and insurance consultants.  In the case of insurance surveyors and loss adjusters, actuaries and insurance consultants, the service is provided mainly to the insurance companies (insurer) while in the case of insurance agents, the service is provided to both the insurer and the policy holder.  Service Tax is liable to be paid by the insurance auxiliary service provider except in case of insurance agents. Insurance agents normally do not charge the policyholder. However, the insurance company pays the agent a commission (usually as a percentage of the insurance premium) on a periodic basis. In the case of an insurance agent, it has been provided in the Service Tax Rules that the person liable to pay Service Tax will be the concerned insurance company who has appointed the agent. Notification no. 5/2001-ST refers. (Ministry’s F.No.B-11/1/2001-TRU dt.09.07.2001)

 

Taxable Value:

 

Value of taxable service shall be the gross amount charged by the service provider for such service rendered by him, includes the commission, fee or any other sum received by actuary or intermediary or insurance intermediary or insurance agent from insurer.

(Section 67 of Finance Act, 1994 as amended)

 

Rule 6 of the Service Tax Rules, 1994, provides for payment of Service Tax only on the amount received and not on the amount raised for the services provided. As such Service Tax is payable only on the amount actually received.

(Ministry’s F.No.B-11/1/2001-TRU dt.09.07.2001)

 

Exemption and Exclusion:

 

1  Pocket expenses, which are reimbursable on actual basis, such as travelling, Boarding and Lodging expenses, are not subjected to Service Tax subject to production of documentary evidence in this respect.

2  The Service Tax is applicable to services provided on or after16th July 2001 and any payment made for the services provided prior to this date will not liable to tax even though payment is made on or after the 16^th July 2001.  

(Ministry’s F.No.B-11/1/2001 TRU dt.09.07.2001)