LIC has Tax Dues Approx. Rs. 75,000 Crore

The state-run insurance juggernaut Life Insurance Corporation of India (LIC) Ltd is fighting the government in numerous courts over demands that it pay a staggering 74,894.5 crore in past taxes, according to draught share sale filings.

According to the records, 37 of the 63 significant tax cases are related to direct taxes, involving a total of 72,762.3 crore, and 26 are indirect tax cases, involving a total of 2,132.3 crore.

The quantity of tax litigation involving a single firm is by far the highest in the country, and if LIC loses even some of these claims against the government, it might result in a considerable financial outflow.

A detailed examination of the prospectus reveals that LIC’s tax matters have piled over time. The majority of the prosecutions stem from allegations by the Internal Revenue Service that LIC overstated its total income for multiple assessment years beginning in 2005.

According to the LIC’s draught red herring prospectus (DRHP), the company has not set aside funds to address tax obligations that may occur as a result of unfavorable court rulings in cases worth roughly Rs 24,728.03 crore. The insurer is preparing to launch the country’s largest-ever initial public offering, with a valuation of over 75,000 crore.

These obligations could result in a major cash outflow from LIC in the future, which has been steadily declining over the last three years. As a result, the large cash outflows may limit LIC’s potential to develop and even accelerate a drop in the insurer’s market share, lowering the chances for profits for LIC’s public shareholders.

LIC’s representative declined to comment on the situation. LIC’s cash and cash equivalents, which represent the company’s disposable cash and liquid investments, were at 26,122.95 crore at the end of September, according to the insurer’s latest financial filing. It was 36,117.68 crore in fiscal 2021, down from 63,194.34 crore the previous fiscal and 67,905.95 crore in fiscal 2019.

“If these appeals are upheld, it will have a significant tax impact on LIC’s profits and cash flow,” said Jignesh Shah, Partner, Bhuta Shah & Co. LLP, a tax and legal consulting firm. “Considering that the Surplus before appropriation for FY21 as per consolidated statement of profit & loss account shareholders’ account (non-technical account) was only 2,974 crore,” he added.

Source: Livemint