GST Council Offers Major Relief to General Insurance Industry

In a decisive move, the GST Council, during its 53rd meeting, provided substantial relief to the general insurance industry by resolving several long-standing GST-related issues. This pivotal decision includes dropping GST demands amounting to over Rs. 18,000 crores, giving significant respite to the sector.

The Council’s decision regularizes previous show cause and demand notices issued by authorities to insurance companies on an ‘as is where is’ basis. This brings an end to the earlier show cause and demand notices served on Indian insurers and reinsurers for not paying such taxes since 2017.

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 GST authorities across various states.

These notices were for not paying relevant taxes at 18 percent for five years, from July 2017 to March 2022. The notices pertained to the non-payment of GST on co-insurance premiums accepted as a follower in co-insurance transactions and non-payment of GST on reinsurance commissions accepted on reinsurance premiums during this period.

“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,” said Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance and Chairman of the General Insurance Council.

Through advocacy with the Ministry of Finance, the Council highlighted the industry’s concerns. Their efforts involved gathering industry feedback, organizing sessions with insurers and tax consultants, and coordinating meetings with the Revenue Secretary.

These actions emphasized the lack of legal foundation for GST demands on co-insurance and reinsurance commissions and the adverse effects of taxing reinsurance of crop insurance schemes, which could negatively impact farmers.

In co-insurance arrangements, multiple insurers cover the risk of the insured. The leader insurer collects the premium and discharges GST, while the tax department had argued that the follower’s share also required GST payment. The GST Council declared the transaction between the leader and co-insurer as “no supply” under Schedule III of the CGST Act, ensuring no GST will be paid on such transactions, and past cases will be dropped.

The GST Council’s decision highlights the importance of addressing industry-specific issues through policy changes. This significant relief paves the way for a more stable future for the general insurance sector, ensuring that the benefits of insurance reach the end-users without the burden of excessive tax demands.