In fact, the department has slapped a Rs 900-crore demand on General Insurance Corporation of India (GIC) and non-life companies. The demand is for non-payment of service tax on reinsurance premium and commission paid on reinsurance premium.
GIC officials told ET that the demands for service tax were first made in 2005 after service tax was introduced on reinsurance premium. While companies are already paying service tax on reinsurance premium collected from domestic companies, the department has made a demand for tax on two other transactions.
These include Retrocession premium, the premium paid by a reinsurance company (GIC) to another reinsurer for taking on part of the risk. Secondly, tax authorities also want GIC to pay service tax on commissions paid to non-life insurance companies who buy reinsurance.
Officials point out that commission paid by GIC to non-life companies is not commission in the literal sense as it is reimbursement of costs incurred by insurer in collecting premium. The corporation has obtained permission from the Committee on Disputes to appeal against the tax order and the dispute is pending.
Income-tax sources said that some of the defaulting companies have paid up. The department has also identified corporates that have defaulted in TDS payable in cross-border transactions. TDS collection during April-December 2008 recorded a 34% increase to Rs 29,000 crore from the same period in the previous fiscal year.
According to sources, the income-tax department is on a drive to increase the tax collection from Mumbai, which accounts for 35-40% of the national direct tax collection.
The advance tax collection from Mumbai in the current fiscal till December 2008 was way below expectations. Mumbai is expected to yield Rs 1,50,000 crore this fiscal, a third of which was expected to come from TDS.