The Deputy Commissioner of State Tax at Mumbai issued a goods and services tax (GST) demand order worth Rs 479.88 crore to Life Insurance Corporation of India (LIC) during the financial year 2020-21. The February 27 notice issued by the authorities states that LIC has wrongly claimed input tax credits and failed to properly reverse these claims and did not pay taxes on time which resulted in interest charges. The total amount in the demand ordered by the deputy commissioner includes Rs 242.23 crore of GST payments alongside interest worth Rs 213.43 crore and Rs 24.22 crore in penalties.  

Business operations and financials of LIC remain unaffected according to management as per the claimable appeal route through Joint Commissioner of State Tax (Appeals) in Mumbai. “This is to inform that the Life Insurance Corporation of India (the Corporation) has received communication/ demand order for Goods & Service Tax, Interest and penalty for Maharashtra State. The order is appealable before the Joint Commissioner of State tax (Appeals), Mumbai,” LIC said in a regulatory filing.

After the announcement LIC stock value decreased by 2.04% leading the share to settle at Rs 741.10 on the BSE market with a reduction of Rs 15.45. Market participants responded carefully to the tax liability announcement while LIC's operational non-impact statement seemed to reduce additional share price reduction risks.

As LIC plans to challenge the demand order, the final financial impact will depend on the outcome of the appeal. A successful outcome of the appeal would eliminate most of the tax liability but an unsuccessful appeal would trigger LIC to establish provisions for tax payments which could affect future profitability. The analysts agree that LIC's solid market position alongside financial stability will let the organization withstand potential pressure from the GST demand without losing future investor trust.