LIC faces litigations bearing tax liabilities of nearly ₹75,000 cr
The amount under tax litigation is by far the country’s largest ever involving a firm
MUMBAI: State-run insurance behemoth and the country’s largest investor Life Insurance Corp. of India (LIC), which is set to hit the market with the country’s largest ever IPO, has revealed in its prospectus that the insurer is entangled in litigations that bear tax liabilities worth about ₹74,894.5 crore.
Of the total 63 major tax cases, 37 are direct tax cases in which the amount involved is ₹72,762.3 crore and 26 are indirect tax cases involving an amount of ₹2,132.3 crore, says the LIC prospectus.
The amount under tax litigation is by far the country’s largest ever involving a single entity and if LIC loses some or many of these litigations against the income tax department, it may lead to a significant outgo from LIC’s cash, which has already been dwindling over the last three years.
A close look at the prospectus shows that LIC’s tax cases have been accumulating over the last several years and most of the tax cases related to allegations by the income tax department against LIC for mis-representing its total income for several consecutive assessment years since 2005.
According to LIC’s prospectus, so far, LIC has not made any provision for tax liabilities worth about ₹24,728.03 crore arising from some of such litigations and statutory demands.
These liabilities may result in a significant future outgo of cash from LIC’s books, which are already suffering an issue of dwindling cash in its account over the past three years. This in turn may diminish the prospects of returns from equity for LIC’s potential public shareholders because such chunky cash outflows may not only act as a hurdle for sustaining LIC’s growth but also may catalyse further fall in the insurer’s market share.
As per the latest financial disclosure by LIC, the insurer’s cash and cash equivalents (which essentially represents a company’s disposable cash and liquid investments) stood at ₹26,122.95 crore for the AprilSeptember 2021 period. For fiscal 2021, this was ₹36,117.68 crore, down from ₹63,194.34 in fiscal 2020 and ₹67,905.95 crore in fiscal 2019.
In one of the major tax cases, LIC has been alleged by the income tax department of incorrectly representing its income for the assessment year 2011-12 and certain disallowances should not have been exempted from the total income. While LIC showed its total income as ₹17,865.15 crore, the income tax department said that the income should have shown as ₹61,955.44 crore.
This matter is currently pending before the Bombay High Court. “If the High Court of Bombay rules against our corporation, our corporation may have to pay approximately ₹6,268.98 crore, based on our internal calculations,” said LIC in its IPO prospectus.
In another major tax case, LIC has been alleged by the tax department of misrepresenting its income at ₹17,034.56 crore instead of ₹69,226.77 crore for the assessment year 2010-11.
The commissioner of income tax filed an appeal on August 5, 2019 before the Supreme Court against LIC in this case and the matter is currently pending. “In the event the Supreme Court rules against our corporation, our corporation may have to pay approximately ₹6,880.83 crore, based on our internal calculations,” said LIC in its IPO prospectus. In 2010, the income tax department alleged LIC of showing incorrect income of ₹15,337.78 crore instead of ₹66,461 crore for the assessment year 2008-09.
LIC said that with regards to this case the commissioner of income tax, Mumbai filed an appeal on 11 May, 2016 before the Supreme Court and the matter is currently pending.
“In the event the Supreme Court of India rules against our Corporation (LIC), our corporation may have to pay approximately ₹5,954.99 crore, based on our internal calculations,” said LIC. There are several such income tax cases filed against LIC, as per the disclosure made in the IPO prospectus.
The LIC spokesperson did not reply to an email of queries on the matter till press time.