I-T dept slaps Rs 9,000-cr tax notice on LIC: Reports

The Income Tax department has slapped the Life Insurance Corporation of India (LIC) with a notice demanding a tax of Rs 9,000 crore. It was in December 2011 that the country’s largest life insurer was served with the tax demand, on a Rs 37,000-crore entry. The reason, according to television reports, is negative reserves in LIC’s 2008-09 balance-sheet.

The I-T department has issued this notice after taking into account Rs 37,000 crore of income that the LIC had treated as “negative reserves”, but the tax authority argues this was actual income. LIC officials, when contacted, denied receiving any such notice. IT officials, though, confirmed the demand was raised in December 2011, and the matter was before an appellate authority.

 

“Negative reserves represent the present value of premium receivables on a policy contract, minus the liabilities during the tenure of the policy,” the report said.

It also said, “LIC is learnt to have argued that this negative reserve is notional income, and is exempt from taxation under the Insurance Act. The I-T department argues that this negative reserve of Rs 37,000 crore is the actual income, based on which the department calculated the tax liability of Rs 9,000 crore or 12.5 per cent tax plus interest for three years.”

However, the tax officials maintain that this income is real and hence taxable. Reports also add that LIC has paid paid Rs 1,800 crore to the taxman, but has moved the Commissioner of Income Tax in an appeal to overturn the tax demand.