India’s GST Council to clarify stance on reinsurance in upcoming meeting | Insurance business America
The decision is expected to provide some relief to reinsurers
reinsurance
By Kenneth Araullo
According to a report, the GST Council of India will clarify that reinsurance is not a service at an upcoming meeting.
According to Moneycontrol, the council will also look into the GST applicable on coinsurance, a government official said.
To avoid affecting insurance industry practices, the council is likely to discuss issuing a clarification that reinsurance should not be treated as a service, an official said. By definition, a tax of 18% is levied on every service.
“The GST Equipment Committee has already discussed the issue and it is proposed that reinsurance should not be treated as supply and hence GST should not be applied to it. The proposal of the equipment committee will be presented to the GST council in the meeting on June 22,” the official said.
The official added that though the supply has been made, GST has already been paid on it, hence it is proposed not to be considered as a supply. The equipment committee comes to this conclusion.
Primary insurers sell insurance policies to customers and assume the risk associated with those policies. To reduce the risk, the primary insurer transfers part of this risk to a reinsurer through a reinsurance contract.
In return for assuming some of the risk, the reinsurer collects a premium from the primary insurer, which is usually a percentage of the premiums the primary insurer collects on the reinsured policies.
By spreading risk across multiple insurers, reinsurance helps reduce the financial impact of large and unexpected losses. This allows the primary insurer to write more policies and cover higher-value risks without incurring the risk of insolvency due to a single catastrophic event.
The Council is also expected to issue a clarification on the applicability of GST on coinsurance. Certain industry practices have resulted in non-payment of the tax, necessitating clearer guidelines, the official said.
With coinsurance, multiple insurance companies provide insurance and share the liability in certain proportions. Currently, it is industry standard for only one of the companies to pay GST.
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2024-06-21 13:00:00
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