HDFC Life Insurance Mentions Calculation Errors in Tax Demand of Rs. 1,500 Crore

New Delhi – In a noteworthy move, the Income Tax Department has sent HDFC Life Insurance Company a tax demand for the assessment year 2021–2022, totaling Rs 1,495.17 crore. The demand also includes interest of Rs 592.41 crore. The life insurer claims that mathematical errors resulted in an inaccurate calculation of the tax demand, and it plans to file a rectification application to fix the problems.

Details of Tax Demand and Firm’s Reaction

The accurate tax demand, according to a June 28 regulatory filing by HDFC Life with the stock exchange, is roughly Rs 1,141.09 crore. The company made it clear that the tax demand contained calculation errors, and it is currently submitting a rectification application to the relevant tax authorities. “There are mathematical errors in the tax demand calculation process. The business is currently submitting an application for rectification to the tax authorities. The corrected tax demand when the rectification order is passed will be about Rs 1,141.09 crore, and interest will be recalculated in accordance with that amount, according to the regulatory filing.

According to the tax demand notice, HDFC Life misclassified shareholders’ net investment income as income from the life insurance business rather than “Income from Other Sources,” failed to include “Negative Reserves” in the taxable surplus, and erroneously claimed shareholder contributions as deductions when determining shareholders’ profit. Furthermore, while determining the taxable surplus in the policyholder’s account, the company mistakenly recognized some marketing and advertising expenses as permissible when they made the admission in their financial statements.

Consequences and Next Moves

After the statement, the company’s shares were trading at Rs 593.65 on the NSE, down 0.07 percent. HDFC Life, in spite of the tax demand, declared that the order will not materially impair its financial operations and that it intends to challenge the demand in court by filing an appeal with the Appellate Authority. The business emphasized that the Income Tax Appellate Tribunal, Mumbai, and the Commissioner of Income Tax (Appeals) had already addressed significant points brought up in the assessment order.

Legal precedents and historical context

In prior years, HDFC Life has addressed the difficulties identified in the current tax demand in a way that has benefited the company. The business announced its ongoing legal battles and disagreements on August 14, 2023, and November 9, 2023. According to these precedents, HDFC Life has a strong cause for correction and a possible drop in the tax demand.

Results

The Income Tax Department’s tax demand has drawn attention to HDFC Life Insurance’s financial procedures and compliance controls. This event emphasizes the significance of careful financial recordkeeping and adherence to tax standards, even though the company is confident in its capacity to correct the errors and lower the tax bill. The ensuing appeal and correction application will be critical in establishing HDFC Life Insurance’s ultimate tax liability