By Venkatachari Jagannathan, IANS,
Chennai : After having received notice from the Income Tax department to reopen their past tax assessments, private life insurers are likely to approach the sectoral watchdog seeking clarity on tax laws.
The insurers, through their representative body Life Insurance Council, plan to seek the help of the Insurance Regulatory and Development Authority (IRDA) in altering the valuation balance sheet format prescribed in the Insurance Act 1938.
These players want this done to factor in the losses incurred while calculating the surplus or loss figure on which tax is paid.
According to industry sources, private insurers, who sell with and without profit policies, contend that the format was designed several years ago and needed to be changed.
However, council secretary general S.B. Mathur told IANS that nothing has been finalised. “We are having a meeting next week to decide on the future course of action.”
Acknowledging the receipt of tax reassessment notice, ICICI Prudential Life’s senior vice president and head of its taxation, compliance and secretarial division Deepak Kinger said: “It is an industry issue. Most issues faced by us are faced by other life insurers.”
Private life insurers are agitated as the tax department wants to apply the usual corporate tax rate of 35 percent on its investment income and the surplus generated in the health insurance business on grounds that these were non-life insurance businesses.
They also contend that the tax department was interpreting the tax provisions to their disadvantage.
“The Income Tax Act clearly mentions that life insurers are to be taxed at 12.5 percent. There is a lack of clarity in the tax laws when it comes to life insurance business in a scenario where companies sell different kinds of products – participating, non-participating and pensions,” V. Srinivasan, chief financial officer of Bharti Axa Life Insurance, told IANS.
According to Kinger, the revenue department wants to tax the money transferred from shareholder’s account (profit and loss account) to policyholder’s account (revenue account), which is akin to taxing capital infusions.
Life insurers resort to such transfers so that the revenue account shows surplus and bonus can be declared for policyholders.
Their demand of setting off such amounts against their investment income has not been not entertained. This amount is now being sought to be taxed.
“The reassessment notices are confined to life insurers in Mumbai. It is a matter of time before IT officials in other regions follow similar interpretations to augment their collections,” the chief financial officer of a private life insurer told IANS on condition of anonymity.