IT department has slapped LIC with a notice demanding tax of Rs9000 crore

Income Tax department has slapped Life Insurance Corporation of India (LIC) with a notice demanding a tax of Rs 9,000 crore. In December 2011 LIC was served with the tax demand, on a Rs 37,000 crore entry. In the balance sheet of 2008-09 LIC has shown this amount as negative reserves.

The I-T department has issued this notice after taking into account Rs 37,000 crore of the income that the LIC has treated as “negative reserves” but as per I-T department it was an actual income.The Negative reserves represent the present value of premium receivable on a policy contract, minus the liabilities during the tenure of the policy.

As per LIC this negative reserve is notional income and hence, is exempt from taxation under the Insurance act. The I-Department argued that negative reserves of Rs 3,700 crore is actual income, and based on which it calculated the tax liability of Rs 9,000 crore or 12.5% tax plus interest for three years.LIC has paid Rs 1,800 crore to taxman, but has moved the commissioner of Income Tax in an appeal to overturn the tax demand.

Tags: LIC, Life Insurance Corporation of India, Negative Reserve, Notional Profit, Tax