Insurance Sector Relief: No GST on Co-Insurance Premium Apportionment & Reinsurance Commission
The 53rd GST Council Meeting held on June 22, 2024, in New Delhi, introduced significant amendments concerning co-insurance premium apportionment and reinsurance commission. The Council recommended including these transactions in Schedule III of the CGST Act, 2017, meaning they shall neither be treated as a supply of goods nor as a supply of services, Circular No. 244/01/2025-GST
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These changes, brought into effect on November 1, 2024, via Notification No. 17/2024-Central Tax dated September 27, 2024, aim to provide tax clarity and prevent double taxation in the insurance and reinsurance sectors. Additionally, the GST Council has regularized the GST paid on such transactions for the past period from July 1, 2017, to October 31, 2024, on an ‘as is where is’ basis.
1. Apportionment of Co-Insurance Premium by Lead Insurer to Co-Insurer
Previous Taxation Issue:
- In co-insurance agreements, multiple insurers jointly provide insurance services to an insured entity.
- The lead insurer collects the premium from the insured and distributes (apportions) it to the co-insurer(s).
- Previously, there were ambiguities in GST applicability on the amount apportioned to the co-insurer.
New GST Treatment (Effective November 1, 2024):
- The apportionment of co-insurance premium by the lead insurer to the co-insurer shall not be treated as a taxable supply under GST.
- The lead insurer must pay GST on the entire premium amount received from the insured.
- Co-insurers do not have to pay GST separately on their apportioned premium amount.
2. GST Treatment on Reinsurance Commission (Ceding Commission)
Previous Taxation Issue:
- Reinsurers provide risk coverage to insurers in exchange for a reinsurance premium.
- Insurers deduct ceding commission before remitting the net amount to the reinsurer.
- There was ambiguity on GST applicability on this deduction.
New GST Treatment (Effective November 1, 2024):
- Ceding commission (reinsurance commission) deducted from the reinsurance premium by the insurer shall not be treated as a taxable supply.
- The reinsurer must pay GST on the full gross reinsurance premium, inclusive of the ceding commission.
- Insurers do not have to pay GST separately on the deducted ceding commission.
3. Regularization of Past GST Payments
- The GST Council recommended regularizing GST payments for the period July 1, 2017, to October 31, 2024.
- Any GST paid on co-insurance premium apportionment and reinsurance commission before November 1, 2024, will not be refunded but will be regularized on an ‘as is where is’ basis.
Implementation Timeline
| Particulars | Effective Date | Notification Reference |
|---|---|---|
| Inclusion of co-insurance premium apportionment & reinsurance commission under Schedule III (Not a Supply) | November 1, 2024 | Finance (No. 2) Act, 2024 |
| Past GST payments regularized | July 1, 2017 – October 31, 2024 | 53rd GST Council Meeting |
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