Major GST relief for general insurance sector: Key demands addressed

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

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These notices were for not paying relevant taxes at 18 per cent 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.

Specific Reliefs Granted

GST on Co-insurance Premium:

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.

GST on Reinsurance Commission:

The tax department considered reinsurance commission as the insurer's income, necessitating GST payment. The GST Council declared the transaction of ceding commission/reinsurance commission between insurer and reinsurer as “no supply” under Schedule III of the CGST Act, ensuring no GST will be paid on these transactions, and past cases will be dropped.

GST on Reinsurance Premium for Crop Insurance:

While GST on policies under government schemes for farmers was exempt from July 1, 2017, reinsurance premiums were not exempt until January 24, 2018. The GST Council proposed an exemption for the interim period, ensuring that GST demands for this period will be dropped.

Tapan Singhel added, "We are grateful to the Ministry of Finance for acknowledging our concerns and taking this progressive step." The relief measures mark a significant milestone for the general insurance industry and instill a sense of reassurance and hope, reinforcing the importance of collaborative efforts in addressing critical industry challenges.

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.