Recently, the Bombay High Court issued notices in a batch of 22 writ petitions filed by major insurance industry players challenging the GST levy on such co-insurance policies.
In response to multiple representations from industry bodies, the GST Council has now recommended significant relief measures. It proposes that the co-insurance premium apportioned by the lead insurer to the co-insurer be declared as "no-supply," and past cases be regularized on an "as is where is" basis.

Similarly, for reinsurance commissions, where the commission is deducted from the reinsurance premium paid by the insurer to the reinsurer, GST authorities have demanded GST on the commission, considering it as the insurer’s income. The GST Council has recommended that this also be declared as "no-supply," with past cases to be regularized on an "as is where is" basis.

Regarding the reinsurance of crop schemes, while initial insurance is exempt from GST, reinsurance of such schemes was not exempted until January 2018. The 53rd GST Council has recommended an exemption for the period from July 2017 to January 2018.

“The recommendation to regularize past cases on an "as is where is" basis is particularly noteworthy. This approach means that the amendment will apply to existing cases, even if they are pending before courts. Dropping these enormous demands will lead to a more transparent structure for how insurance businesses are run in India and enhance the ease of doing business for insurance players. While the fine print of the amendment in the Law is awaited, the modus operandi for refund of tax already paid by Insurance companies would be required to be seen,” said Saurabh Agarwal, Tax Partner, EY.

“These recommendations by the GST Council provide much-needed relief to the insurance sector, which has been grappling with complex tax demands and legal battles. Declaring co-insurance premiums and reinsurance commissions as "no-supply" and exempting the reinsurance of crop schemes for a specific period underscores a pragmatic approach towards addressing industry concerns. By regularizing past cases, the GST Council not only alleviates the financial strain on insurance companies but also fosters a more conducive business environment. This move is likely to bolster the confidence of industry players and pave the way for smoother operations within the sector. The insurance industry can now focus on growth and innovation, knowing that regulatory support is aligned with the realities of their business practices. The Council now is expected to address the rate of GST applicable on health policy premiums wherein Industry bodies have been pushing for reduction in GST rate from existing 18% to 5%. It is to be seen whether the Council would slash the rates keeping in the socio-economic importance of healthcare policies,” Agarwal added.

Expressing similar sentiments, Abhishek A Rastogi, founder of Rastogi Chambers, who is representing companies before DGGI said, “Availment of credit by any recipient of supply is based on the conditions prescribed in the statute, and when the insurance companies fulfil all of those conditions, the availment of credit becomes the statutory right. The fact that some of the expenses are disputed as per the provisions of the insurance regulation has nothing, to do with the legitimacy of these credits under the GST provisions.”

“Other relevant aspect for issuance of any notice, in cases where there is no fraud and the issue relates to Industry practice, is to issue the notices within a time bound manner. Any notice issued beyond the statutory timelines can be challenged. Further, GST council announced for waiver of interest and penalty when notices are issued under section 73. Accordingly, in a situation where the input tax is a pass through, these transactions of procurement become revenue neutral and tax is never a burden”, added Rastogi.