Insurance Companies to File Petition Against ₹12,000 Crore GST Demand on Co-Insurance, Seeking Clarity.
Insurance companies are considering filing a legal petition due to a tax demand concerning the commission paid for co-insurance. They seek clarity from the court as imposing Goods and Services Tax (GST) on this commission would result in double taxation. Facing a combined tax demand of ₹12,000 crore, the insurance industry hoped for clarification from the upcoming GST Council meeting. However, with no meeting expected before the new government forms and a March 31 deadline looming to settle the tax, insurance firms plan to lodge the writ petition by the end of this month, according to information obtained by ET.
Co-insurance allows the insured to distribute their risk among multiple insurers, with a lead insurer and one or more co-insurers sharing the risk, especially in high-risk situations. The industry argues that since GST on the full insurance premium, including the co-insurers’ share, is already covered by the lead insurer, this additional tax demand would lead to double taxation, which is against established legal principles. Last September, ET first reported that the Directorate General of Goods and Services Tax Intelligence (DGGI) had issued tax demand notices to ICICI Lombard and six other insurers for not paying GST on reinsurance premium despite earning commissions from co-insurance, extending these notices across the sector.
Over 20 insurance companies are now facing similar demands for the period from July 2017 to March 31, 2022. The General Insurance Council, the industry’s top body, has reached out to the finance ministry, which indicated on February 19 that the issue would be addressed promptly. However, with no GST Council meeting expected until July and the payment deadline imminent, there are concerns that the DGGI might begin to freeze accounts.