The biggest overhang for the insurance company stocks is the looming tax dispute battle for agent commissions. Quote: “HDFC Life on June 23 said it had received a show-cause notice from the Directorate General of GST Intelligence (DGGI) demanding Rs. 942 crore tax for the July 2017 to FY22 period”.
The Tax Department is alleging that Insurance companies are paying agent commissions far in excess of what is legally permissible. Please note that the issue is industry-wide and not limited to HDFC Life alone. If the Tax Authorities are right, then their claims on Insurance Cos. are aggregating 1000’s of crores.
This in turn can lead to prolonged tax litigation. It is tough to predict the outcome and timeline of such disputes. Plus, any clamp down on agent commissions could adversely affect the distribution network of insurance policies, which will further impact the future business growth.
Source:
Disc: Invested since more than 1 year
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