Insurance industry to PM - Revamp stamp duty

BANGALORE: Did you know that thepremium you pay on your insurance policy also includes a 0.2 per cent fee asstamp duty on the sum assured? If you didn''t, here is another bit ofinformation. This fee could have been much lower if the same were to be on thepremium amount instead of the sum assured. The insurance companies are hopingthat the Finance Minister would correct the anomaly and hence have included thesame in their pre-budget memorandum. According to sources, the change would havea big impact on the pricing of premium. For instance, the cost ofstamp duty for an insurance policy with an annual premium of Rs 30,000 with asum assured amount of Rs 5 lakhs, works out to Rs 1,000 under the current systemwhile the same could be as low as Rs 60 if the premium was the basis ofcalculation. "Right now the stamp duty is paid by insurancecompanies but it is built into the price of the policy. It would be moresensible to charge the same on the premium amount," said the head of aninsurance company. The industry is also hoping that the budgetwould make the entire process of stamp duty payment much simpler by allowing thecompanies to club the payment on a group basis. The industry sources argue thatin the case of group policies, the stamp duty is required to be paid on anindividual basis rather than as a group. "It is both time consuming andexpensive as we have to procure innumerable stamp duty papers", said a source.While the government may not be too eager to change the basis ofcalculation as it would lower its revenue flow, the insurance industry is hopingthat it would give right signal on the FDI (foreign direct investment) front. Atpresent, the foreign insurance companies are allowed to hold a 26 per cent stakewhile the industry has been demanding more. "This is probably theleast controversial issue for FM and at the same time it will give the rightsignal on privatisation if the FM decides to increase the limit", said a sourcein the industry. Most of the foreign joint venture companies are willing to risetheir stakes to 74 per cent but the government might hike it to 44 per cent inthe budget.