11.10.2023: GST Council likely to clarify premium on life insurance

The GST Council will soon provide clarity on input tax credit for life insurers, following a recent Rs 290-crore demand on Life Insurance Corporation — a move that is expected to come as a relief for the state-owned behemoth.

The complication on GST arises in case of traditional life policies or endowment plans, where GST is levied on only a portion of the plan. As a result, on the first-year premiums, GST is levied at 4.5%, while for subsequent years, it is levied at 2.25%.

That is because these policies have two components — an insurance component, which attracts GST, and a savings component, which is treated akin to deposits or investment in banks.

The issue relates to the input tax credit claimed on the portion of premium that is exempted from payment of GST. Since the premium itself is exempt, tax authorities believe, the law does not allow companies to claim input tax credit.

“That is why a presumptive rate is taken,” explained a tax consultant, adding that some of the tax officials believe that LIC should get lower credit that it has claimed and should actually reverse some of the claim.

So far, LIC — which has multiple registrations across the country — has received a notice from GST authorities and the fear is that others may join in making a demand in the months ahead. Besides, private players too could face similar action, prompting the government to take up the issue at the level of GST Council. While LIC’s stocks had responded negatively to the disclosure, tax experts said that it was an initial notice from the GST authorities in Bihar and the process of payment is expected to take time. The process of clarification, however, may take a few months.

In a stock exchange filing, the public sector player had said that the notice related to a claims of Rs 167 crore, with interest of Rs 107 crore and penalty of Rs 17-odd crore for “nonreversal of the input tax credit availed and utilised on the item non-leviable to GST on portion of the premium received by the corporation from the policy holder and the non-reversal of the input tax credit of the portion of the agents commission on the item non-leviable to GST on portion of the premium and the exempted policies”.

Source: The Times of India 

Register Today