Indian ministry drops tax probe on co-insurance and reinsurance
The Indian Ministry of Finance has confirmed that it will drop its claims on Goods & Services Tax (GST) for co-insurance and reinsurance transactions carried out by Indian insurers between July 2017 and March 2022.
The move is expected to save Indian non-life insurers some INR180bn ($2.15bn), according to the General Insurance Council (GIC).
It will also serve as a further boost to the capacity of the sector to cover larger and more complex risks on the back of the recent relaxation in rules on the use of overseas reinsurance and lifting of ownership restrictions by foreign insurers and reinsurers.
A number of leading insurers had reportedly received tax notices for allegedly failing to pay the taxes from 2017 to 2022.
The GST authorities accused insurers of not paying GST on premiums shared in co-insurance deals and on reinsurance commissions during this period.
The insurers did not agree with the interpretation and, with support from the GIC and consulting firm E&Y, insurers raised their concerns with the Ministry of Finance and GST authorities.
In its latest decision, the GST Council, chaired by finance minister Ms Nirmala Sitharaman, clarified that premiums shared between insurers in co-insurance agreements and reinsurance commissions between insurers and reinsurers are not taxable.
Furthermore, any past GST liabilities on reinsurance services for specified insurance schemes will be regularised for past periods.
Additionally, retrocession (the reinsurance of reinsurance) will now be exempt from GST under specific conditions.
The notice stated: “Co-insurance premium apportioned by lead insurer to the co-insurer for the supply of insurance service by lead and co-insurer 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.”
In a move that will presumably make the use of international programmes more attractive in India, the notice added: “Transaction of ceding commission/reinsurance commission between insurer and re-insurer may be declared as no supply under Schedule III of CGST Act, 2017 and past cases may be regularised on ‘as is where is’ basis.”
“GST liability on reinsurance services of specified insurance schemes… may be regularised on ‘as is where is’ basis for the period… GST liability on reinsurance services of the insurance schemes for which total premium is paid by the government… may be regularised on ‘as is where is’ basis for the period… to issue clarification that retrocession is ‘re-insurance of re-insurance’ and therefore, eligible for the exemption,” continued the GST notice from its 53rd meeting.
