India's GST council to clarify reinsurance stance in upcoming meeting

Decision expected to provide some relief for reinsurers

India's GST council to clarify reinsurance stance in upcoming meeting


By Kenneth Araullo

The GST Council of India is set to clarify that reinsurance is not a supply of service at an upcoming meeting, according to a report.

As per Moneycontrol, the council is also expected to address the GST applicable on co-insurance, according to a government official.

In an effort to avoid disrupting insurance industry practices, the council will likely discuss issuing a clarification that reinsurance should not be treated as a supply of service, an official said. By definition, an 18% tax is levied on any supply of service.

“The GST’s fitment committee has already discussed the issue and it is proposed that reinsurance should not be treated as supply and hence no GST should be applied on it. The fitment committee proposal will be placed before the GST Council in the June 22 meeting,” the official said.

The official added that while supply may have been made, the GST is already paid on it, so it is proposed to not consider it as supply. This is the conclusion of the fitment committee.

Primary insurers sell insurance policies to clients and assume the risk associated with those policies. To mitigate risk exposure, the primary insurer transfers a portion of this risk to a reinsurer through a reinsurance contract.

In return for assuming part of the risk, the reinsurer collects a premium from the primary insurer, which is typically a percentage of the premiums collected by the primary insurer for the policies being reinsured.

By spreading the risk among multiple insurers, reinsurance helps reduce the financial impact of large and unexpected losses. This allows the primary insurer to underwrite more policies and provide coverage for higher-value risks without risking insolvency due to a single catastrophic event.

The council is also expected to issue a clarification on the GST applicability for co-insurance. Certain industry practices have led to non-payment of the tax, necessitating clearer guidelines, the official said.

Co-insurance involves multiple insurance companies providing insurance and sharing liabilities in specified proportions. Currently, industry practice is for only one of the companies to pay GST.

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