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According to a senior government official, Goods and Services Tax (GST) co-insurance and re-insurance will most likely be discussed at the next GST Council meeting after the fitment committee investigates the problem. Certain industry practices have resulted in non-payment of the tax, necessitating clarity.
The GST authorities have completed investigations into insurance businesses for tax avoidance, which have led in cases on three counts: greater commissions given to agents, coinsurance, and reinsurance. In all three cases, the department sent notices to the insurance firms.
“On certain issues in insurance that have become industry practice, they may be taken up by the GST Council. On coinsurance and reinsurance, the matter may be examined by the fitment committee and placed before the Council at the next meeting. The officials told the officials that the stakeholders have also sent representations to the GST authorities seeking clarifications. The next GST Council meeting is likely to be held before March-end. “The issues have to be dealt with, so certain issues will be taken up by Council and clarified,” he said.
Coinsurance is wherein 4-5 insurance companies provide insurance and are ready to bear the liabilities in some proportion. The practice here is for only one of the companies to pay GST—tax authorities need to clarify that each insurance company has to pay GST proportionately, he said.
In reinsurance, once the consumer takes insurance and pays a premium, the insurance company transfers the risk to another company to reduce the likelihood of large liability payouts for a claim. The Council may discuss if the difference in the amount paid by the consumer and the company is a commission or a discount on the insurance premium.
State-owned Life Insurance Corporation of India received a GST notice of ₹806.3 crore last month for various compliance-related shortcomings in FY 2017-18. GST officials had said LIC did not observe various rules, such as reversing the input tax credit availed from reinsurance.
In 2023, Star Health and Allied Insurance received a GST demand notice of ₹38.99 crore. The alleged demand and the impugned (disputed) Show Cause Cum Demand Notice pertains to non-payment of GST liability on the premium received by the company as a follower insurer under a coinsurance arrangement during the period from July 2017 to March 2023, the company filing had said.
ICICI Lombard General Insurance received a GST notice in 2023 for not paying tax of around ₹1,730 crore from July 2017 to March 2022. The alleged demand show cause cum demand notice pertains to non-payment of GST on the co-insurance premium accepted and non-payment of GST on reinsurance premium ceded to various Indian and foreign reinsurance companies during the period July 2017 to March 2022, the company had said.
Also Read : Reckless issuance of GST notices may lead to litigations, CBIC urges caution Companies gear up for litigation on GST anti-profiteering clause
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