GIC Re approach CBDT seeking tax relief

The General Insurance Corporation of India (GIC Re) along with other general insurers approached the Finance Ministry seeking relaxation on the recent tax provisions. The latest tax provisions have impacted insurers’ profits due to higher tax liability.

Higher tax liability is due to the withdrawal of the exemption under clause 38 of Section 10 of the Income Tax Act, 1961. It is also partially due to the introduction of Section 112A in the 2018-19 Union Budget.

As per the new tax provisions, insurers are liable to pay a tax around 33% on the sale of listed equities against the previous rate of 10-15%.

Apart from GIC Re, various private insurers have a high tax liability on equity investments. Insurers are taking up the issue with the Central Board of Direct Taxes (CBDT).

Also Read: Working and earning abroad? Know the income tax rules

GIC Re saw about a 20% drop in its net profits in the fourth quarter of 2018-19. This is partly due to a higher tax payout under the new tax provisions. GIC Re paid an additional Rs 800 crore towards long term capital gains (LTCG) tax.

With the view of minimising economic distortions and curbing erosions of the tax base, budget 2018-19 brought back the LTCG tax on the sale of listed equities, worth more than Rs 1 lakh held over 12 months, at a rate of 10%.

The introduction of new tax provision has undoubtedly increased the insurers’ tax payout as the exemption is no longer available. Profits from long-term capital gains are currently being taxed under business income.

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