HDFC Life Insurance slapped tax order worth ₹2,087 cr

HDFC Bank’s life insurance unit HDFC Life Insurance Company has received an income tax order worth ₹2,087.58 crore from the assistant commissioner of the income tax, Mumbai, on June 27, 2024. The tax demand including interest is for AY2021-22. HDFC Life says it’ll appeal before the higher judge and it will not have any adverse martial impact.

"The aforesaid order will have no adverse material impact on the financial operations of the Company and the same shall be further contested by way of an appeal before the Appellate Authority," the company says in a statement.

The income tax order comprises a tax demand of ₹1,495.17 crore and interest worth ₹592.41 crore. There's no penalty imposed on the company.

HDFC Life, in its statement, says while calculating the above tax demand, arithmetical inaccuracies are involved. "The company is in the process of filing a rectification application before the tax authority. Post passing of the rectification order, the rectified tax demand will be around ₹1,141.09 crore and interest will be recomputed accordingly."

The company says the I-T department has alleged that it didn't consider “negative reserves” as part of a “taxable surplus”. Other issues raised include shareholders’ net investment income classified as ‘income from life insurance business' instead of ‘income from other sources'; income claimed as exempt under Section 10; contribution from shareholders incorrectly claimed as a deduction while computing shareholders' profits.

Other allegations against the life insurer are proportionate disallowance as per Section 14A read with Rule 8D not made; certain marketing; and ad expenses in financials considered as admissible expenses incorrectly while calculating the taxable surplus in the policyholder's account.

HDFC Life says the said order is appealable before the appellate authority. "The company will file its appeal within the specified period."

The HDFC Life shares are trading 0.38% at ₹595.60 on the BSE today. The scrip opened marginally up and surged to the day's high at ₹599.50 on the BSE. At the current share price of ₹595.60, the company's m-cap stands at ₹1.2 lakh crore.

HDFC Life shares have underperformed in the past year, dropping 8.67%. Its year-to-date and six months fall stands at 8.25% and 8.18%, respectively. The share has risen 2.91% and 2.89% in the past week and past month, respectively.

Before this, HDFC Life was slapped with two GST orders worth around ₹50 lakh by the West Bengal Bureau of Investigation for FY2019-20 and FY 2020-21 in April 2024.

In FY24, HDFC Life's net profit was recorded at ₹1,569 crore, up 15% from ₹1,360 crore in FY23. The company's new business premium came in at ₹29,631 crore, which is about 2% from ₹29,085 crore. Its total premium surged 10% to ₹63,445 crore, which is up 10% from the last year.