The GST Council is set to clarify the input tax credit for life insurers, addressing a recent demand of Rs. 290 crore imposed on the Life Insurance Corporation (LIC). The state-owned giant is expected to get relief with this development.
The complexity surrounding GST occurs in relation to traditional life policies or endowment plans, where GST is only applicable to a portion of the plan. GST is levied at 4.5% for initial premiums, while subsequent years attract a 2.25% levy.
This situation arises due to these policies having two components: an insurance component, which attracts GST, and a savings component, which is treated similarly to deposits or investments in banks.
The issue pertains to the input tax credit claimed on the premium portion exempt from GST payment. Tax authorities are of the view that companies are not entitled to claim the input tax credit as the premium is itself exempt.
According to a tax consultant, a presumptive rate is fixed, and some tax officials believe that LIC should receive lower credit than it has claimed, potentially requiring the company to reverse some of the claims.
LIC, having more than one registration across the country, has received a notice from GST authorities. There is concern that other entities may also demand payments in the coming months. Private players may face similar actions, prompting the government to address the matter at the GST Council level. Although LIC’s stocks initially responded negatively to the disclosure, tax experts suggest that it was an initial notice from GST authorities in Bihar, and the payment process is expected to take time. The clarification process, however, may require a few months.
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In a filing with the stock exchange, the public sector player stated that the notice pertained to a claim of Rs. 167 crore, with additional interest of Rs. 107 crore and a penalty of around 17- -odd crore for “non-reversal of the input tax credit availed and utilized on the item non-leviable to GST on the portion of the premium received by the corporation from the policyholder and the non-reversal of the input tax credit of the portion of the agent’s commission on the item non-leviable to GST on the premium portion and the exempted policies.”
