Tag Archive | "General Insurance"

Insurance Before GST: Should You Buy Before 1st July or Not?

  • Easypolicy
  • 09 Jun 2017

Hence, any changes in taxation are definitely going to leave an impact on insurance markets. That is the reason, introduction of GST (Goods and Services Tax) will affect the insurer's business largely and the prices of insurances thereof. Lok Sabha passed the long pending GST Bill on 8th August, 2016, wherein the indirect tax system (multiple/various taxes) which has a cascading effect due to double taxation on goods and services, will be replaced by uniform GST. This shall come in effect from 1st July, 2017.

Is it going to affect the insurance industry positively or negatively?

Is it advisable to buy insurance before 1st of July, 2017?

Let's find out!

It has been established that GST is a value added tax, which is being brought in implementation to eliminate adverse effects of current multiple  taxes on costs of goods and services, down the value chain. Therefore, this new tax reform, with the new service tax rate anticipated to be fixed at 18%, will leave a not-so-favorable effect on insurance industry and cost of insurance products.

·     The reason is that with GST in picture, service tax will be increased from 15% to 18%, hence the cost of buying and maintaining insurance is going to go high.

·         This is because, when you buy an insurance policy, you pay the service tax on the Risk element of premium. The risk being, the payment (term policy) made by the Insurer to you, if something happens to you. You are not paying any service tax on investment that you are making in buying insurance. After GST implementation, all insurance policies including term, health, and car will become expensive as the service taxes rate will go high from 15% to 18%. Which is by minimum 300 basis points, where one basis point stands equal to 1/100 of percentage point. This stands true for Policy renewal too.

·         The traditional insurance savings plans, better known as endowment plans currently attract a service tax of 3.75% on premium, in first year. This will see an hike up to 4.5%, which will prevail for the first year of GST. In second year the current tax slab on endowment plans is 1.88%, which will be 2.25% after the implementation of GST, second year onwards. Hence, the maintenance of endowment plans will also become expensive.

·         Talking of Health Insurance, the present rate of tax is 15% on premium, which is again rise up to 18% after GST. Same is the case with Car Insurance. GST of 18% will be levied upon every motor insurance policy you buy.

All in all, the overall cost of insuring life and assets, and making investments in insurance based products, is definitely going to rise as GST comes in force. This indicates, that buying a long Term effective plan or term insurance before GST, to secure your life, is going to be a smart move.

Moreover, as the cost of insurance is likely to go high, the insurance market is going to become even more competitive, before the implementation of GST. The insurance provider companies are going to offer the best possible insurance products with maximum benefits to consumers. There are other intermediary costs associated with insurance premiums, such as issuance cost, agents' commissions etc. The companies are going to lower these costs to make as much sales as possible, to compensate the effect of enhanced service tax, pro GST.

If you plan to buy insurance before 1st July, 2017, which is actually a sensible move, you must go for term plans. Life insurance or term plans are the most suitable plans one can invest in, because they provide comprehensive Coverage to the Insured individual and provide for the family in the absence of the policyholder.

Other investment plans are also going to make a suitable choice only if you compare smartly.

Before you buy, you must compare the insurance products to match with your financial requirement, investment needs, tax structure, your liabilities, future objectives, cost and your insurance budget.

GST: Profit or Loss: Top 10 Differences That You Need To Know Before 1st July, 2017

  • Easypolicy
  • 08 Jun 2017

A revolutionary change is about to hit Indian Economy in form of GST a.k.a Goods and Services Tax!

As per the Constitution Amendment Bill, multiple existing indirect taxes will be replaced by uniform GST and will be applicable all across India, commencing 1st July, 2017.

In a way this is a welcome move by the government as the existing indirect tax structure proved to be less fruitful and worked as an impediment in nation's economic growth. CST, entry tax, restricted input tax have divided the economy in fragments. Multiple taxes in complex structures elevate the cost of compliances, and hence, the businesses are affected adversely. Thus, the enforcement of GST is going to be a crucial step and is speculated to have a positive impact on current economic scenario. Also, it is likely that some sectors will see a greater impact than others.

Why is that so?

What are the other positive or negative impacts of GST?

How is it going to help the tax structure and economy thereof?

To get a clear insight, let us discuss the top 10 profit loss differences that you need to know before 1st July, 2017:

1. Profit - Boost in Production and Efficient Supplies

The replacement of various tax barriers with a uniform tax entity across the country will propose a seamless credit. This change will introduce India as a common market with boosted production and efficient supplies. The expansion in trade and commerce is quite anticipated as GST is going to have a positive impact on organized logistics industry and modern day warehousing.

2. Profit - A Boost to "Make In India"

With this seamless tax introduction, the cascading tax effect levied on the cost of production and cost of services, will be eliminated. The cost of goods and services will significantly go down while encouraging the concept of "Make in India". The lure for foreign products shall diminish eventually when good quality products are made available in Indian market. The sectors that will see an uplift with regards to "Make in India" and new tax implementation are FMCG, Pharmaceuticals, Consumer Durables, Automobiles, and Engineering Goods.

3. Profit - Ease of Business

It is a well foreseen situation that introduction of GST will bring in a lot of ease with regards to business processes. When various multiple tax entities will get integrated in single GST, a huge number of procedures and costs pertaining to those procedures will be reduced and hence the functioning shall become smooth.

4. Profit - A Boost To Investments: Elevated Jobs

With a transparent and well predicted tax system in place, local and foreign investors will be encouraged to invest in Indian industries which, in result will create a good number of employment opportunities. The financial, economical and social status of the citizens will see a considerable lift.

5. Profit - Reduced Corruption

With the implementation of GST, the processing of tax returns, payments and refunds will be monitored electronically which will reduce the human interference to a extensive level. There will be a built-in check on all business transactions, as offered through seamless credit, and all ITR processing will be under efficient control. There will be no scope left to generate black money, and the available capital will be used productively and judicially. With this, the corruption and frauds related to business transactions and taxation will go down, resulting in augmented financial and economic situation of the entire nation, and citizens therefore.

6. Profit - Lower GST Rates

Product and area based tax exemptions will witness a substantial low under GST. Consequently, the revenue neutral rate will go down as the tax base is widened. Hence, the government will be encouraged to keep the taxation slabs and rates considerably low, further reducing the prices of goods in medium slab.

7. Profit - Elimination of Double Taxation

Currently, due to tax dispute on the nature of transaction, whether it should be taxed for supply of goods or provision of services, certain sectors face double taxation. These sectors can be identified as licensing of intellectual properties, patents, copyrights, software supplying, e-commerce trade, and leasing services. These sectors will benefit as the double taxation will be eliminated and they will be paying a single tax under GST.

8. Loss - Increase in Documentation

While this prolific implementation is going to simplify the tax structure immensely, there is a down side to it too. The procedural documentation for any business will increase manifolds, to keep the relevant supporting papers in place as the number of business tax returns to be filed in a year will increase substantially. Just for an example, a real estate builder will be required to file 61 returns in a year as compared to 24 in current system. Also, in the prevailing system, a business offering services from various states can file a centralized tax registration. This will alter under GST. A return from all the states from which a business is functioning, will be required to be filed.

9. Loss - Impact on Cash Flow and Working Capital Due To Stock Transfers

Businesses that require to maintain a high inventory of goods in different states will experience a negative impact. Their cash flow and working capital will see a reduction, as they will be mandated to pay full rate GST on moving the stock from one state to another. The current system levies CST/VAT on sales only and not the stock transfers from state to state.

10. Loss - Lesser Benefit of GST to Some Sectors

The business sectors which survive on significant inputs from plastic and polymer industry, fertilizer industry, metal industry, telecom industry, air transport and real estate will not be able to reap the full benefits of GST. The reason being, all the indirect taxes will not be subsumed in GST on the introduction. Electricity duty, stamp duty, excise duty, and VAT on alcoholic beverages, petroleum based products and likes will not fall under GST. These will form a part of cost of production goods which are used as inputs in downstream products. Hence, the loss.

The industries that will be impacted adversely in terms of inflation would be telecom, banking and financial services, air and road transport, and real estate development.

It's true that GST is eagerly awaited and dreaded at the same time. Yet, there are greater profits and lesser losses, which eventually will write-off as the system comes in place and starts to smoothen the deep embedded creases.

Let us just wait and watch till the next quarter gets over in September 2017!

Will Indelible Ink Reduce Cash Crowd?

  • Easypolicy
  • 17 Nov 2016

Another masterstroke that came from the Modi led government on Tuesday in its fight against Black Money after its demonetization move is the use of indelible ink to prevent people from making more than one bank transaction from a single bank branch in a day. This inedible ink is much like the one used during elections, the banks have been given operational instructions to differentiate between repeat customers and first time customers for the day.

Economic Affairs Secretary, Shaktikanta Das told the media that Prime Minister Modi held a review meeting with top officials of RBI on the aftermath of the demonetization of INR 1000 and INR 500 notes. The decision to use the indelible ink on the fingers of customers was taken in that meeting. He also asked the public not to panic and don’t get mislead by some false messages floating on various social media platforms. He also reassured people that there is no dearth of cash with the government; it has enough cash to exchange.

This move has been started with a few cities to see how it goes. India being such a massive country by population has huge crowds gathering up at ATMs and bank counters. To control this massive army of customers, the government is taking all possible steps to make the situation for people in the crowds as tolerable as possible. Many businessmen or rich people have instructed their employees or servants to line up in the queue of banks to do the transactions of the former, these employees get early in the lines and other people are left standing in these long lines, thus limiting the number of transactions by the banks per person would give equal opportunity to other people to exchange their old notes.

This practice would also check money laundering as multiple small transactions cannot be done to whiten the black money. Banks have been asked to keep a watch on the people who return to their branches. This is also expected to curb the misuse of the facility. Also, in its efforts to make this trying situation as easy as possible the government has taken steps to enhance the cash availability with banks and post offices to meet the increased demand. In this regard various religious institutions have been asked to deposit all the smaller denomination notes received by them from the donors in their bank branches as soon as possible. This step would help increase the cash availability with the banks. Also, a coordination group, including senior representatives of banks, has been set up to monitor all the steps taken by the government.

The Jan Dhan Yojna (JDY) accounts are under high scrutiny as black money hoarders can use JDV account holders to stack their black money in the latter’s accounts. The government is leaving no stone unturned, special task force teams have been set up to study and investigate all the annulled notes received or collected by various banks and post offices. These teams also study the infusion of fake currencies in the system.