The Ministry of Finance, through its Tax Research Unit, has issued Circular No. 244/01/2025-GST, dated January 28, 2025. This circular provides crucial clarifications regarding the payment of GST on co-insurance premiums and reinsurance commissions. Let’s delve into the key points and implications of this circular.
Key Highlights of the Circular
- Background and Context
- The circular is based on the recommendations from the 53rd GST Council meeting held on June 22, 2024.
- It aims to regularize the GST payment on specific insurance-related transactions, ensuring clarity and compliance.
- Inclusions in Schedule III of the CGST Act, 2017
- Co-insurance Premium Apportionment: The activity of apportioning co-insurance premiums by the lead insurer to the co-insurer is now included in Schedule III. This means it is treated neither as a supply of goods nor services, provided the lead insurer pays all applicable taxes on the entire premium amount.
- Reinsurance Commission: Services provided by an insurer to a reinsurer, where a ceding commission is deducted from the reinsurance premium, are also included. The reinsurer must pay all applicable taxes on the gross reinsurance premium, inclusive of the ceding commission.
- Regularization of Past Transactions
- The circular regularizes the payment of GST on these transactions for the period from July 1, 2017, to October 31, 2024. This is done on an ‘as is where is’ basis, ensuring that past transactions are compliant with the new clarifications.
- Implementation and Compliance
- The provisions were enacted through the Finance (No. 2) Act, 2024, and came into force on November 1, 2024.
- Any difficulties in implementing this circular should be reported to the Board for further clarification.
HSN Code for List of Services for 2025
Implications for Insurers and Reinsurers
This circular brings much-needed clarity to the insurance sector, particularly in handling co-insurance and reinsurance transactions. By including these activities in Schedule III, the government has simplified the tax treatment, reducing the compliance burden on insurers and reinsurers.
For insurers, it is crucial to ensure that all applicable taxes are paid on the entire premium amount in co-insurance agreements. Reinsurers must also be diligent in paying taxes on the gross reinsurance premium, including any ceding commissions.
Conclusion
Circular No. 244/01/2025-GST is a significant step towards streamlining GST compliance in the insurance sector. By regularizing past transactions and providing clear guidelines for future ones, the government aims to foster a more transparent and efficient tax environment. Insurers and reinsurers should review their practices to ensure they align with these new regulations.