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June 2010

No Service Tax on Re-insurance Commission — Circular No. 120(a)/2/2010-ST, dated 16-4-2010.

By Pinky Shah, Sonalee Godbole, Gaurang Gandhi, Tarun Ghia, Brijesh Cholera, Pratik Mehta | Chartered Accountants
Sejal Vasa | Company Secretary
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Part B : Indirect Taxes


41 No Service Tax on Re-insurance Commission — Circular No.
120(a)/2/2010-ST, dated 16-4-2010.

By this Circular it has been clarified that the insurance
company in terms of S. 101A (Part IV-A) of the Insurance Act, 1938 is required
to re-insure a specified percentage of sum insured with another insurance
company. The shared amount of expenditure is commonly known as ‘Commission’
though strictly it is not in the nature of commission. Since the arrangement
between insurance company and re-insurance company is only sharing of expense
and there is no question of services provided by the insurance company to the
re-insurer for consideration. Hence question of charging service tax even under
any other taxable service does not arise.

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