Regularising Payment of GST on Co-Insurance Premium and Reinsurance Commission

Act Name/Rule Name: Central Goods and Services Tax Act, 2017

Applicable Rule/Section: Schedule III of CGST Act, 2017

Type of Document: Circular

Date: January 28, 2025

Circular No./Notification No.: Circular No. 244/01/2025-GST

This circular clarifies how GST (Goods and Services Tax) applies to certain insurance transactions, specifically co-insurance and reinsurance, to ensure there’s no confusion in the industry.

Co-Insurance Premium

  • In co-insurance, multiple insurers jointly provide coverage to a customer. The lead insurer collects the full premium and later shares a part of it with other co-insurers.
  • According to this circular, the portion of the premium that the lead insurer shares with the co-insurers will is included in Schedule III where it is not be treated as a supply of goods or services.
  • However, the lead insurer must ensure that GST is paid on the entire premium collected from the customer.

Reinsurance Commission

  • Insurers often transfer some of their risk to a reinsurer called reinsurance. The reinsurer may deduct a commission (ceding or reinsurance commission) from the reinsurance premium paid by the insurer.
  • The circular says that this commission deduction is not treated as a supply of goods or services.
  • But, the reinsurer must pay GST on the entire reinsurance premium received from the insurer (including the deducted commission).

Regularisation of Past Transactions

  • These rules officially came into effect on November 1, 2024. However, GST may not have been correctly handled for such transactions since the introduction of GST in July 2017.
  • To avoid disputes or penalties, the circular regularises these past transactions for the period between July 1, 2017, and October 31, 2024, meaning businesses will not face additional penalties as long as GST was paid correctly based on the existing practice during this time.

What’s the Impact?

  • For Insurers: This ensures clarity in GST rules for co-insurance and reinsurance transactions, reducing the risk of disputes or penalties.
  • For the Government: It avoids unnecessary litigation and ensures compliance going forward.
  • For the Industry: It’s a compliance relief for past transactions (2017–2024), as businesses won’t be penalised retroactively if they followed reasonable GST practices.

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