Star Health and Allied Insurance, a prominent player in the Insurance industry as noted by InvestingPro Tips, is facing a tax recovery demand of Rs 38,99,77,849/- ($517 million) from the Directorate General of GST Intelligence, Mumbai Zonal Unit. The Indian insurer disclosed the development in an exchange filing on Monday.
The notice, dated October 6, 2023, pertains to the non-payment of Goods and Services Tax (GST) on premiums from a co-insurance arrangement spanning from July 2017 to March 2023. The company has been asked under Section 74(5) and Section 50 of the Central Goods and Services Tax Act, 2017 to justify why the said amount should not be recovered with interest and penalty.
InvestingPro Tips highlights that Star Health's revenue growth has been slowing down recently, which might be a contributing factor to the current tax recovery situation. The company, which is trading at a high Price / Book multiple, is expected to respond within the prescribed timelines as set out by the Directorate General of GST Intelligence.
This demand is part of broader industry-wide issues that have been under scrutiny by tax authorities. The outcome of Star Health's case could potentially set a precedent for similar cases in the insurance industry. It's worth noting that analysts predict the company will be profitable this year, according to InvestingPro Tips.
The issue of GST on co-insurance premiums has been a contentious one for insurers. Co-insurance is a risk-sharing arrangement where several insurers share the risk associated with a policy. The question of whether GST should be applied to these shared premiums has been a subject of debate in the industry.
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