General Insurance Gets Bonanza From GST Council

Waiver of interest and penalty would help in reducing the litigations for the various manual errors

Maulik Manakiwala, Partner, Indirect Tax, BDO India

FinTech BizNews Service

Mumbai, June 23, 2024: The taxation experts from BDO India and Dhruva Advisors have shared the interesting insights on 53rd GST Council Meeting, held yesterday. 

Maulik Manakiwala, Partner, Indirect Tax, BDO India: The recommendation of GST Council to waive-off interest and penalty for notices issued without allegation of fraud, suppression etc, for FY 2017-18 to FY 2019-20, where taxpayer pays the full amount of tax demand on or before 31 March 2025 is a welcome move since there were many interpretation issues during the initial phase of GST where demands were raised during recent department audits or due to issuance of clarificatory circulars. Such waiver would also help in reducing the litigations for the various manual errors made during the initial periods.

Gunjan Prabhakaran, Partner & Leader, Indirect Tax, BDO India: On the most talked about issue relating to taxation of corporate guarantees between related parties, the GST council has recommended a retrospective amendment with effect from October 2023 to provide that the deemed valuation for levy of GST @ 1% of value of guarantee would not apply in case where the recipient can claim full input tax credit or where transaction qualifies as an export of service (e.g. guarantee given for a foreign subsidiary) would not apply, effectively restoring the status quo. This amendment would help in easing the compliance and record keeping burden and also would reduce the fund blockages in some cases. However, the amendment would continue to apply in cases wherein full input tax credit is not available to the recipient and sectors such as power or real estate would look for reduced rate of deemed valuation.

Jaya Amarnani, Partner, Indirect Tax, BDO India: A major relief has been provided to the co-insurance and re-insurance sector by the GST Council, by recommending that Co-insurance premium apportioned by lead insurer to co-insurer and transaction of ceding commission/ re-insurance commission between insurance commission may be declared as no supply, accepting the stand of the industry. Multiple insurance and re-insurance companies had received notices, demanding GST on these issues from 1 July 2017 and the amendment would resolve the dispute for the industry.

Ranjeet Mahtani, Partner, Dhruva Advisors: 22nd June, 2024 may have to be rechristened as GST day, given the flurry of recommendations regarding rate and on various other issues that the GST Council made during the 53rd meeting.

The GST Council has made some recommendations regarding the rate for supplies of goods and services, and made plethora of recommendations on “measures for facilitation of trade”, which encompass variety of topics, for example corporate guarantee between related persons, place of supply for custodial services by banks to FPIs, reversal of ITC in respect of amount of premium in life insurance services, non-levy of interest to extent of balance in Electronic Cash Ledger that is used for payment of tax, amongst others.

Given the evolving nature of the GST Law in India, the GST Council recommended insertion of Section 11A in the Central Goods and Services Tax Act, 2017, which will now provide the Government powers, on the recommendations of the Council, to allow regularization of non-levy or short levy of GST, where tax was being short paid or not paid due to common trade practices.

Such a provision was to be found in the erstwhile Central Excise Law, Service Tax Law but, is present in the Customs Law of India. This provision, once introduced in the GST Law, will clear the decks for the Government to condone certain practices that led to exchequer not collecting due taxes and thereby grant immunity to taxpayers.

The insurance sector and more particularly the general insurance sector has witnessed a bonanza of recommendations from the GST Council:

That sharing of insurance premium between lead insurer and co-insurers is not a supply and past cases to be given a quietus.

That ceding commission between insurer and reinsurer is not a supply, and past cases to be given a quietus.

That GST on reinsurance services of certain specified schemes listed in by Sr. Nos. 35 & 36 of notification No. 12/2017-CT (Rate) dated 28.06.2017 to be regularized for the period of 01.07.2017 to 24.01.2018.

That GST liability on reinsurance services of the insurance schemes for which total premium is paid by the Government that are covered under Sr. No. 40 of notification No. 12/2017-CTR dated 28.06.2017 may be regularized on ‘as is where is’ basis for the period from 01.07.2017 to 26.07.2018.

Clarification for extension of exemption to retrocession, i.e. reinsurance of reinsurance.

To reduce litigation, issue clarification on requirement of reversal of input tax credit in respect of amount of premium in life insurance services, which is not included in the taxable value as per Rule 32(4) of CGST Rules.

To reduce litigation issue clarification regarding taxability of wreck and salvage values in motor insurance claims.

In May 2024, the President of the GST Appellate Tribunal entered office and a question erupted as to whether the time-limit for filing appeals has commenced. The GST Council’s meeting on June 22, 2024 has recommended amending Section 112 of the CGST Act, 2017 to allow the three-month period for filing appeals before the Appellate Tribunal, which will start from a date to be notified by the Government in respect of appeal/revision orders passed before the date of said notification. This recommendation will allay the anxiety of taxpayers and professionals.


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