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Reinsurance & Coinsurance Not under Tax Ambit

Reinsurance and coinsurance are not the supply of a service and, hence, not liable to tax, according to a decision by the Goods and Services Tax (GST) Council on Saturday. This spells a significant breather to insurance companies facing thousands of crores in tax demands.

The GST Council also recommended clarifications on taxability of reimbursements of securities or shares as employee stock option plans given by a company to its workers. Officials said exemptions would be conditional and notified later.

Coinsurance, in this instance, refers to insurers sharing insurance bearing liabilities. Reinsurance is the cover an insurer buys to insure itself through the payment of premiums. The industry has contended that GST should only be paid by one company in this chain.

However the Directorate General of Goods and Services Tax Intelligence (DGGI) last year issued notice to about 20 insurance companies raising tax demands of about ₹12,000 crore for non-payment of GST on co- insurance and reinsurance premiums. Apex grouping General Insurance Council had lobbied the government, see- king clarity. It submitted that the levy of GST on all firms amounted to double taxation.

“Coinsurance premium apportioned by the lead insurer to the coinsurer for the supply of insurance service by lead and coinsurer 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 GST Council noted.

A senior official said clarifications have been provided and that provisions are now in place to take care of past notices and penalties. “A detailed notification may be issued soon” the official told ET.

Experts said these decisions reflect a proactive approach by the GST Council to address industry concerns and usher in a new era of growth and efficiency for the insurance sector.

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

In a relief to foreign airlines and shipping companies facing tax demands, the council also addressed the ambiguity regarding applicability of the flexible valuation framework on the import of services by related parties, including transactions between head and branch offices.

“The council’s clarification extends the existing dispensation for related party transactions to encompass the import of services, which eliminates prior confusion and empowers businesses to fully utilise the potential of the flexible valuation framework under GST,” said Saurabh Agarwal, tax partner, EY India.

The GST council exempted compensation cess on imports at special economic zones for authorised operations, effective July 1, 2017. Services provided by special purpose vehicles to the Indian Railways and statutory collections made by the state Real Estate Regulatory Authorities will also be GST exempt.

S-ET Image Source: Google

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