(LtoR)- Sanjay Malhotra, Revenue Secretary, Nirmala Sitharaman, Union Finance Minister and Pankaj Chaudhary, minister of state,Ministry of Finance, at a press meet on Saturday after the 53rd Goods and Services Tax (GST) Council meet in New Delhi
Earlier, Indian general insurers, including state owned New India Assurance and ICICI Lombard General Insurance, had received show cause and demand notices to the tune of Rs 25,000 crore from the GST authorities for allegedly not paying the relevant taxes for five years from July 2017 till March 2022
New Delhi: In a major relief for the Indian re/insurance industry, the Goods and Services Tax (GST) Council, headed by Union Minister for Finance Nirmala Sitharaman, among other things, has sweepingly decided that no tax can be levied on co-insurance and reinsurance commission retrospectively and has nixed earlier show causes and Rs 25,000 crore demand notices served on Indian re/insurers by the authorities for not paying such taxes since 2017.
The 53rd meeting of the GST Council was held here on Saturday, ahead of the Budget 24-25, and, on the basis of the GST’s fitment committee recommendations, has clarified that reinsurance is not a supply of service with retrospective effect.
Earlier, Indian general insurers including state owned New India Assurance and ICICI Lombard General Insurance, in Sept 23,had received show causes and demand notices to the tune of Rs 25,000 crore from the GST authorities from various states for allegedly not paying the relevant taxes at 18 per cent for five years from July 2017 till March 2022.
The GST authorities had alleged the insurers and reinsurers had not paid GST on the co-insurance premium accepted as follower in case of coinsurance transactions and on re-insurance commission accepted on the reinsurance premium ceded to various Indian and foreign reinsurance companies during the period July 2017 to March 2022.
However the general insurers had found fault with the way GST authorities had interpreted both the transactions- coinsurance and reinsurance commission-for levying GST on them.
Consequently, the insurers, led by the General Insurance Council and consultant E&Y, had taken up the matter with the ministry of finance and GST authorities in Jan 24, and were told to wait for the next GST Council meeting for any clarifications.
Finally, today, the GST Council has categorically clarified that the co-insurance premium shared by lead insurer with the co-insurer for the supply of insurance service by lead and co-insurer to the insured in coinsurance agreements as no supply under Schedule III of the CGST Act, 2017 and past cases can be regularised on ‘as is where is’ basis which means, whoever have paid any GST will not get any refund and those who have not paid will not be required to do so retrospectively.
GST on Reinsurance Commission:
Reinsurance commission is a deduction from the reinsurance premium paid by the insurer to the reinsurer, which is considered a discount. The tax department alleged that the reinsurance commission is the insurer’s income, necessitating GST payment.
Relief granted by GST council: The transaction of ceding commission/reinsurance commission between insurer and reinsurer declared as “no supply” under Schedule III of the CGST Act. No GST will be paid on such transactions. Past cases will be dropped.
“All cases involving issue 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 may be regularized on ‘as is where is’ basis for the period from 01.07.2017 to 24.01.2018,” instructed GST Council.
GST on Reinsurance Premium for Crop Insurance
GST liability on policies under government schemes for farmers/crop risk was exempted from July 1, 2017. However, reinsurance premiums were not exempt until January 24, 2018. Due to the absence of a specific exemption, the Tax department proposed GST demands for the period from July 1, 2017, to January 23, 2018.
Relief granted by GST council: An exemption notification exempting GST on reinsurance premiums is proposed for the interim period from July 1, 2017, to January 23, 2018. GST demands for this period will be dropped.
GST liability 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 may be regularised on ‘as is where is’ basis for the period from 01.07.2017 to 26.07.2018, said the GST Council.
“To issue clarification that retrocession is ‘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,” added the GST Council.
On the proposal to reduce GST on retail health insurance, Sitharaman told media that the GST Fitment Committee had received request for GST rationalisation on insurance premiums and GST Council will have to work on it.
“It couldn’t be discussed in today’s meeting, but may taken up in the next GST meeting that will be held in August,” said Sitharaman.
Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance and chairman of the General Insurance Council expressed his gratitude and remarked, “This decision by the GST Council is a testament to the relentless efforts and advocacy by the General Insurance Council. It brings immense relief to the industry and ensures that the intended benefits of insurance reach the end-users without the burden of tax demands. We are grateful to the Ministry of Finance for acknowledging our concerns and taking this progressive step.”
R Balasundaram, secretary general, Insurance Brokers Association of India (IBAI), commented that some areas of difficulty for insurers as in coinsurance and reinsurance have been addressed.
“We will need to see the attendant rules to see how these will be implemented in practice. For instance, share of premium received by a coinsurer, it is said will be treated as ‘ no supply’ and hence GST will not be applicable. Welcome change. However, it is not clear if the lead insurer who retains 100 per cent of the GST on the premium collected, can claim input credit on the entire 100 per cent or only the GST on their premium share. Ceding commissions to insurers on reinsurers will be treated as ‘ no supply’ and hence GST will not be applicable on the same,” said Balasundaram.
Sathish Mathur, member executive Board at Prudent Insurance Brokers, said,“,The underlying reinsurance transaction between the insurers and the reinsurers, the aligned reinsurance broking transaction, and its treatment was called for clarification. This time, the GST Council confirmed that the transactions between insurers and reinsurers will be considered a ‘no supply’ under Schedule III of the CGST Act, 2017. Henceforth, all the past cases will be regularised on an ‘as is where is’ basis.”
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