GST Council's tax norm tweaks may ease burden on general insurers

The Goods and Services Tax (GST) Council's decision to not levy tax on co-insurance premium and reinsurance commission retrospectively will be a consolation for general insurance companies, experts said.

The 53rd GST Council headed by Finance Minister Nirmala Sitharaman on Saturday announced that no tax will be levied on co-insurance premium and reinsurance commission, retrospectively.

It has also regularised previous show causes and demand notices issued by the authorities on these companies on ‘as is where is’ basis.

“These measures are expected to bring multifold benefits, significantly reducing ongoing litigation and compliance burdens, while providing the much-needed clarity and stability to the insurance industry,” said Krishan Arora, partner and leader, indirect taxes, Grant Thornton Bharat.

 

According to insurance industry officials, the decision is a big solace for the insurance & reinsurance industry as no tax can be levied on co-insurance premium and reinsurance commission.

The earlier show cause and demand notices served on Indian insurers and reinsurers for not paying such taxes since 2017 have been put to an end.

Earlier, several Indian general insurance companies, including New India Assurance and ICICI Lombard General Insurance, had received multiple show cause and demand notices in September 2023 from the GST authorities of various states. This was for not paying relevant taxes at 18 per cent for 5 years from July 2017 till March 2022.

These notices were pertaining to non-payment of GST on the co-insurance premium accepted as follower in case of co-insurance transactions and non-payment of GST on reinsurance commission accepted on the reinsurance premium during the time period.

As a result of requests from insurance companies, the GST council clarified that the co-insurance premium apportioned by the lead insurer to the co-insurer for the supply of insurance service rendered by lead and co-insurer to the insured in coinsurance agreements, may be declared as no supply under Schedule III of the CGST Act, 2017 and past cases may be regularised on ‘as is where is’ basis.

The council also announced that the transaction of ceding commission or re-insurance commission between insurer and reinsurer may be declared as no supply under Schedule III of CGST Act, 2017 and past cases may be regularised on ‘as is where is’ basis.

“The forthcoming clarifications will ensure that both taxpayers and tax officers have a clear understanding, thereby streamlining operations and fostering a more business-friendly environment. These decisions reflect a proactive approach by the GST Council to address industry concerns and take mammoth steps towards enhancing the ‘ease of doing business’. It will usher in a new era of growth and efficiency for the insurance sector,” Arora added.

Sitharaman told the media that the GST Fitment Committee had received a request for GST rationalisation on insurance premiums.

And, since the GST Council has to work on it, the topic could not be discussed in the meeting. It may be taken up in the next meet in August.

“The expectation that GST will be removed or rate of GST will be reduced on health insurance premium, especially for senior citizens, has not come through. So, the insurance buyer does not have reason to cheer about,” said R Balasundaram - secretary general, Insurance Brokers Association of India (IBAI)

Other changes in the GST for reinsurance services included regularization of GST liability on reinsurance services of specified insurance schemes covered by Sr. Nos. 35 & 36 of notification No. 12/2017-CT (Rate) dated 28.06.2017 on ‘as is where is’ basis for the period from 01.07.2017 to 24.01.2018. GST liability was also regularized on reinsurance services of the insurance schemes for which total premium is paid by the Government that are covered under Sr. No. 40 of notification No. 12/2017-CTR dated 28.06.2017 on ‘as is where is’ basis for the period from 01.07.2017 to 26.07.2018. 8.

Also, the council will issue clarification that retrocession in ‘re-insurance of re-insurance’ and therefore, eligible for the exemption under Sl. No. 36A of the notification No. 12/2017-CTR dated 28.06.2017.

For the life insurers, the GST council mentioned that clarifications will be issued in due course to reduce litigation on pressing issues such as input tax credit reversal for life insurance premiums not included in taxable value. Similarly, clarifications will also be issued on taxability of wreck and salvage values in motor insurance claims, and input tax credit on repair expenses for motor vehicle insurance claims settled through reimbursement.