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GST Council Has Brought Some Major Relief to the Insurance Sector

  • Posted on June 24, 2024
  • News
  • By TSW NEWS DESK
  • 111 Views

The 53rd GST Council meeting brought significant relief to the insurance sector by exempting co-insurance premiums and reinsurance commissions from GST. This decision addresses longstanding disputes, potentially nullifying ₹25,000 crore in tax demands and providing clarity on various insurance-related issues.

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More importantly, the recent 53 rd GST council meeting, presided over by the Finance Minister, Nirmala Sitharaman has made some crucial decisions which are indeed quite beneficial for the reinsurance and the general insurance business in India.

The Council has announced its stance that there will be no tax on co-insurance premiums and reinsurance commissions, arguing that these activities do not constitute a ‘supply’ for the purpose of GST legislation. This ruling resolves a protracted controversy between insurers and GST authorities, which could potentially cancel out tax claims worth about ₹25,000 crore against insurance firms.

The decision has been welcomed by Ramaswamy Narayanan Chairman & Managing Director GIC Re as ‘a major positive for the industry’ and reducing the tax burden that has been a major overhang and promote growth and new capacities in insurance and reinsurance lines.

The Council has also recommended the practice of past cases on an ‘as is where is’ basis which is also considered to go a long way in easing the burden on companies by modifying their contingent liabilities.

Also, the Council has dealt with a very sensitive topic that relates to the wreck and salvage values in motor vehicle insurance. An explanation has been planned to be released about its tax implications which may address to an issue that emerged when IRDAI banned insurers from deducting salvage amount.

Besides, the Council has rationalised all cases related to GST applicability on reinsurance services of the following government sponsored insurance schemes – Fasal Bima Scheme and Ayushman Bharat Insurance up to January 24, 2018 from July 1, 2017.

Stella Joseph, Partner at Economic Laws Practice, opined that these decisions not only exclude some transactions from the GST ambit, but also relieve any reversal of input tax credit.

Also Read: AI revolutionizing insurance industry through fraud detection

These measures are hoped to bring much-needed certainty and financial respite for the insurance sector and may foster more growth and investment within this sphere.

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