The provisional figures of Direct Tax collections continue to register steady growth.
In the world of taxation, ambiguity often gives rise to disputes that can have far-reaching consequences. The recent demand of Rs 290 crore imposed on the Life Insurance Corporation (LIC) is a poignant example of the complexities that surround the Goods and Services Tax (GST) regime, in this case its application on life insurance.
However, it is heartening to learn that the GST Council is poised to pro- vide much-needed clarity on input tax credit for life insurers, potentially offering a lifeline to LIC and ensuring a fair playing field for all. The issue at hand centres on the intricate nature of traditional life insurance policies, such as endowment plans, where GST is applicable to only a portion of the premium. Specifically, GST is levied at 4.5 per cent for initial premi- ums while the same for subsequent years attract a 2.25 per cent levy.
This duality is a consequence of these policies that segregate premiums into two components ~ an insurance element, subject to GST, and a savings component, akin to bank deposits or investments, which are not taxed. The crux of the matter lies in the input tax credit claimed on the premium portion exempt from GST. Tax authorities have raised questions regarding the legitimacy of these claims, contending that companies should not be entitled to such credits since the premium itself is exempt from GST.
This issue transcends LIC as other insurers, both public and private, could potentially find themselves embroiled in similar disputes in the coming months. LIC’s extensive nationwide presence, with multiple registrations, has already garnered the attention of GST authorities, who have issued a notice in Bihar. Private players are not immune, raising the stakes of this situation even further.
The initial market response to this revelation saw LIC’s stocks dip, understandably causing concern among investors and policyholders alike. However, this initial notice from GST authorities is just the tip of the iceberg and the subsequent payment process is expected to be a protracted one. The real game-changer here is the GST Council’s impending clarification, which promises to bring much-needed clarity to a convoluted taxation landscape. From a broader perspective, this issue underscores the necessity for the government to address GST intricacies at the Council level.
The divergence in interpretations among tax authorities only adds to the confusion for businesses operating across different states. Uniformity and consistency in tax regulations are paramount to foster a favourable business environment, especially in sectors as vital as insurance. In a filing with the stock exchange, LIC disclosed that the notice pertained to a claim of Rs 167 crore, along with additional interest and penalties.
This sum underscores the magnitude of the issue and the potential financial impact on insurers. A fair resolution, facilitated by the GST Council’s intervention, will be crucial to maintain- ing financial stability within the industry. The Government would do well to step in, and to do so with- out delay.