Insurance Industry Challenges GST Taxation on Co-Insurance Commissions

Insurance Sector Challenges GST Tax Demand

Amidst mounting concerns over a hefty Goods and Services Tax (GST) tax demand, insurance companies are mulling legal action to seek clarity on the levy imposed on commission earned from co-insurance. The potential for double taxation has stirred unease within the industry, prompting insurers to explore legal avenues for resolution. With a collective tax demand of ₹12,000 crore looming, stakeholders had anticipated clarification during the impending GST Council meeting. However, with no meeting on the horizon prior to the formation of a new government and the impending March 31 deadline, insurers are poised to file a writ petition by month’s end, as disclosed by sources to ET.

Navigating Co-Insurance Complexities and Taxation

Co-insurance arrangements, integral to risk distribution among insurers, involve a lead insurer and co-insurers who share risk, particularly in high-risk scenarios. The crux of the issue lies in the GST applicability on the entire insurance premium, inclusive of the co-insurers’ component. Insurers argue that subjecting this commission to GST would lead to double taxation, contrary to established legal principles. Previous reports revealed that the Directorate General of Goods and Services Tax Intelligence (DGGI) issued tax demand notices to ICICI Lombard and six others for non-payment of GST on reinsurance premiums, further exacerbating industry concerns.

Broader Industry Ramifications and Regulatory Engagement

The ripple effect extends across the insurance landscape, with over 20 companies grappling with similar tax demands spanning from July 2017 to March 2022. In response, the General Insurance Council, representing the sector’s interests, has engaged with the finance ministry. While assurances of prompt resolution were provided in February, the absence of a GST Council meeting until July and the looming payment deadline have intensified apprehensions. There are growing concerns that the DGGI may resort to drastic measures such as freezing accounts, exacerbating the industry’s predicament.