Ahead of the Union Budget, the general insurance sector has received a massive tax cut of over Rs 1.8 trillion after the GST Council withdrew tax demands on insurance companies.
According to the General Insurance Council of India (GI Council), the apex body for non-life insurance companies in India, the reliefs granted by the GST Council include the withdrawal of GST demands of over Rs 1.8 trillion at the industry level, which will provide significant relief to the industry. The GST demands were on coinsurance and reinsurance commissions and tax on reinsurance for crop schemes.
The GI Council’s contention was that the GST requirement for a joint insurance and reinsurance board lacked legal basis and it also highlighted the impact of taxing reinsurance under crop insurance schemes as it may not benefit farmers. “These efforts have paid off and the GST Council has granted the much-needed relief,” the GI Council said.
The GST cuts came after the General Insurance Council proactively solicited feedback from the industry, organised meetings with the insurance industry and tax consultants, and coordinated a meeting with the Revenue Secretary, sources said. The cuts were approved at the GST Council meeting held on June 22.
In a coinsurance arrangement, two or more insurers (the leader and the follower) cover the risks of an insured. The leader collects the entire premium, exempts GST from it, and distributes the premium among the co-insurers. The tax authorities argued that the follower’s share constitutes an “outside supply” under the GST Act and is required to pay GST even though the leader has already exempted GST from the total premium.
According to the GI Council, the transactions between the leader and the co-insurer have been declared as “no supply” under Schedule III of the CGST Act. “No GST will be payable on such transactions. The past instances stand withdrawn,” the council said.
Regarding GST on reinsurance commission, the GI Council said the commission is a deduction from the reinsurance premium paid by insurance companies to reinsurers and is therefore considered as a discount. The tax authorities argued that reinsurance commission is income of insurance companies and hence GST is payable. The transaction of assignment commission/reinsurance commission between insurance companies and reinsurers has been declared as ‘no supply’ under Schedule III of the CGST Act. No GST will be payable on such transactions and past cases will be withdrawn, the authorities said.
GST liability on insurance under the government scheme on farm/crop risks was exempted from July 1, 2017. However, reinsurance premiums were not exempted till January 24, 2018. In the absence of specific exemption, the Revenue Department proposed to charge GST for the period from July 1, 2017 to January 23, 2018.
“An exemption notification is proposed to exempt GST on reinsurance premiums for an interim period from July 1, 2017 to January 23, 2018. The GST requirement for this period is withdrawn,” the council said.
Tapan Singhal, Managing Director & CEO, Bajaj Allianz General Insurance and Chairman, General Insurance Council, said, “This decision by the GST Council is a testament to the General Insurance Council’s tireless efforts and advocacy. It will bring great relief to the industry and ensure that the true benefits of insurance reach the end user without any tax burden.”
The general insurance industry has urged the government to reduce GST on personal health insurance from 18% to 5% to encourage people to take up health insurance as a social security measure. The industry has collected premium of Rs 109 billion on health insurance in 2023-24.
The general insurance industry has mobilised premiums of Rs 2.89 trillion across various segments in FY 2023-24.
© Indian Express Ltd.
First uploaded on: 26 June 2024 05:15 IST