GST authorities issue Rs 2,000 cr notice to 20 insurers operating in SEZs

An investigation by the Directorate of GST Intelligence (DGGI) found insurers wrongly extending tax exemptions to group medical insurance cover for employees of SEZ units and their families

Goods and services tax (GST) authorities have issued notices to more than 20 general insurance companies, demanding approximately Rs 2,000 crore in unpaid tax, according to a report by Moneycontrol. This action targets services provided to employees and their families working in industrial units within Special Economic Zones (SEZs).

DGGI finds misuse of tax exemptions

Under Section 16 of the Integrated GST (IGST) Act, no tax is levied on exports and supplies to SEZs. However, the recent investigation by the Directorate of GST Intelligence (DGGI) found that the insurers extended these tax exemptions to group medical insurance cover for employees of SEZ units and their families, which is considered misuse of the provision. Group health insurance services were not included as authorised operations by insurers’ SEZ units.

 

DGGI probe revealed the following:

>Insurance services billed to SEZ units also extended to employees and their families

>IGST was not paid on these services, leading to the issuance of SCNs

>Services provided by the insurers are subject to IGST at an 18 per cent rate

This is not the first instance of the insurance sector coming under the DGGI’s scrutiny. Earlier, notices were sent to about 30 insurance firms regarding alleged malpractices in commission payments to agents, involving a claimed GST evasion of over Rs 5,500 crore. These notices were contested by the companies before the appellate authority.

Companies under DGGI radar

Among the companies receiving show-cause notices (SCNs) are:

>HDFC Ergo General Insurance Co

>Star Health & Allied Insurance

>Cholamandalam MS General Insurance Co

>New India Assurance Co

>United India Insurance Co

Companies receiving the SCNs can contest them before the appellate authority, the high court, and ultimately the Supreme Court.

Regulatory guidelines and SEZ operations

In 2015, the Insurance Regulatory and Development Authority of India (IRDAI) issued guidelines allowing insurers to set up offices in SEZs, known as IFSC Insurance Offices, to conduct direct and reinsurance business. These offices must meet specific requirements, such as a good track record and sufficient funds. In 2019, rules were updated to allow insurance intermediaries to operate in all SEZs.

The insurance companies cited a letter from the Ministry of Commerce and Industry that included a uniform list of authorised operations for IGST exemption in SEZs. However, the investigation found that while the insurers’ SEZ units were authorised for general insurance business services, group health insurance services were not recognised as authorised operations.

This significant move by GST authorities underscores the stringent regulatory environment and the importance of compliance with GST laws. The insurance companies involved now face a legal battle to contest the SCNs and justify their tax practices regarding SEZ operations.