HDFC Life insurance Receives Tax Demand of Rs 1,495.17 Crore for AY 2021-22: Company to File Rectification Application

HDFC Life insurance has found itself in hot water after receiving a hefty tax demand from the Income Tax department. The company disclosed in an exchange filing that it has been slapped with a tax demand of Rs 1,495.17 crore for the assessment year 2021-22, which also includes an interest component of Rs 592.41 crore.

The tax authorities have raised several issues with HDFC Life’s tax calculations, pointing out that certain expenses, such as marketing and advertising costs, were incorrectly classified as admissible expenses when calculating the taxable surplus in the policyholder’s account. Additionally, the authorities noted that ‘Negative Reserves’ were not considered as part of the taxable surplus, shareholders’ net investment income was misclassified, and contributions from shareholders were wrongly claimed as deductions in the calculation of shareholders’ profit.

In response to the tax demand, HDFC Life stated that there are arithmetical inaccuracies in the calculation and that they plan to file a rectification application with the tax authorities. The company expects the rectified tax demand to be around Rs 1,141.09 crore, with interest to be recomputed accordingly.

Furthermore, HDFC Life highlighted that many of the issues raised in the assessment order are already covered by orders from the Income Tax Appellate Tribunal, Mumbai, and the Commissioner of Income Tax (Appeals) for earlier years. These orders were disclosed in previous filings made on August 14, 2023, and November 9, 2023, respectively.

The company is confident that once the arithmetical inaccuracies are rectified and the tax authorities reconsider their calculations, the revised tax demand will be significantly lower. HDFC Life is committed to resolving this issue in a timely and transparent manner.

Investors and stakeholders will be closely monitoring the developments in this tax dispute, as it could have implications for HDFC Life’s financial performance and regulatory compliance. The company’s ability to address the tax demand efficiently and effectively will be crucial in maintaining investor confidence and safeguarding its reputation in the market.