Service tax on single premium annuity plans reduced in Budget 2016

The Budget 2016 has proposed reducing service tax on single premium annuity products from 3.5% to 1.4%. This move is a positive for policyholders because single premium annuity products are usually high-ticket policies and service tax also works out to a fairly high sum, says Sujoy Manna, Vice-President (Products) HDFC Life Insurance.

In case of the National Pension System, subscribers have to use 40% of the accumulated corpus to purchase annuity. Even in case of other superannuation schemes offered by employers, a part of the accumulated corpus is used to purchase annuity. So, the amounts tend to be huge. That is why reducing the service tax will be a benefit.

 
In single premium annuity plans the policyholder purchases the annuity and starts receiving pension. The payouts can be either immediate or deferred pension. The frequency of the payouts can be monthly, quarterly, half-yearly or annually. There are also different options for the payout, such as annuity payable for life, where the payout amount is highest, but ends with death of the policyholder. Or annuity for life with option of 100% payable to spouse. In this case, the purchase price is returned on the death of the last survivor.