In what could be a double whammy for the general insurance industry, the finance ministry has ruled out any relaxation on tax deducted on premium remitted to reinsures overseas, a senior government official said. Under the current taxation norms, this amount will not be calculated as expenditure, which would lead to further taxation.

The total amount that general insurers may have to shell out can exceed Rs 3,000 crore since on an average a general insurance company remits Rs 1,000 crore to overseas insurers. Currently, 13 general insurers are operating in the country, including four public sector companies.

Earlier, the IT department had slapped notices on companies such as Cholamandalam, Bharti AXA, United India and Royal Sundaram for non-payment of taxes.

Foreign reinsures are not willing to share the burden. This will lead to an increase of 40% in my reinsurance cost, which well be forced to pass on to our customers. This anomaly should be addressed at the earliest so as to put us on a par with other industries, said M Ramadoss, CMD, Oriental Insurance.

With the current TDS rate around 40%, insurance regulator Irda has already raised this issue with the finance ministry. This is a unique practice and weve sought clarification and exemptions for general insurers, said an Irda official, who did not wish to be quoted.

The finance ministry, however, has ruled out any blanket cover since such relaxation would raise similar demands from other sectors such as export and IT.

Besides, this remittance will not be treated as expenditure under Sec 40 (a) (i) since insurance companies failed to follow the procedure under Sec 195 (3), said a senior finance ministry official who wished to remain anonymous.

As per Sec 195, if a person wants to make payments to a non-resident and those payments are not explicitly declared exempt by the provisions of the IT Act, the person making the payments has to deduct tax at source and can free himself of the liability only if he gets the concurrence of the assessing officer.