The income-tax department last week sent notices to six Mumbai-based third party administrators (TPAs), who process insurance claims, askingthem to cough up Rs 117 crore for two consecutive financial years, beginning 2008-09.
Confirming the development, an I-T official in Mumbai said the department raised the demand after conducting a survey, which revealed that none of the TPAs had deducted tax (TDS) while making payment to hospitals. In Mumbai, the tax liability of six TPAs ranged from Rs 3 crore to Rs 69 crore each.
He said chief commissioners in other cities might also follow suit the Mumbai division as tax outstanding of 27 TPAs operating in the country could be over Rs 500 crore.
TPAs handle the task traditionally handled by the companies providing insurance to its employees. They make payment from its own float funds to hospitals on behalf of the policyholders. The insurance companies reimburse them later and also pay them a commission of 5% of the health insurance premium.
Pawan Bhalla , president of the Association of TPAs, told “We are only the facilitator between the patients, insurance companies and hospitals. We can’t be asked to pay tax. And insisting on TDS has no meaning. The hospitals and insurance companies do file their returns and therefore, the question of income escaping tax net does not arise.”
The association has moved the Bombay High Court after its members received the I-T notices. In the writ petition filed with the high court, TPAs said they do not pay the hospitals to fulfil their own personal liabilities and responsibilities. The payment is meant at discharging the primary liability of the insurance companies, TPAs claimed. The association had also challenged the previous I-T demand at the Delhi High Court.
When asked, an I-T official, who did not wish to be named as he was not authorised to talk to the media, said: “We are raising the demand in accordance with the law as interpreted by Karnataka High Court.”
The Karnataka High Court, in a recent judgement, had observed that the TPAs were obligated to deduct TDS as they were paying hospitals. The court had also observed that the critical factor in deciding this issue was the fact that the agreement for paying to the hospitals was between a TPA and a hospital.
In India, money reimbursed to hospitals for cashless services to policyholders amounts to Rs 4,000 crore a year. Of this, 60% is facilitated by the TPAs. The tax demand was raised under Section 194 (J) of the Income-Tax Act that want the TPAs deduct tax at source at 10% before making payments to hospitals.