The Insurance Regulatory and Development Authority (IRDA) has asked the Income-Tax Department and the Central Board of Direct Taxes (CBDT) to consider exemption of Third Party Administrators (TPAs) from Tax Deducted at Source (TDS). According to a recent CBDT circular, the TPAs would have to deduct 10 per cent of the amount as tax when making payments to hospitals on behalf of patients.

“However, the purpose of introducing TPAs is to facilitate speedy cashless transactions in health insurance, thereby promoting policyholders interest. The new tax provision goes against this,” Mr J. Hari Narayan, Chairman, IRDA, told Business Line.

“Besides, it has been said that tax had to be paid with retrospective effect, which may not augur well for the industry,” the Chairman said.

The new provisions would apply retrospectively from 2003 to TPAs.

The regulator had formally written to the Tax Department and CBDT on the issue and was awaiting their response.

The argument against taxing TPAs is that they make payments to hospitals on behalf of health insurance policy holders. Given the current level of health insurance penetration, the tax burden could be Rs 100-120 crore , according to experts.

There are about 27 TPAs that have been given licences by IRDA, according to the Authority’s Web site.

On the growth of health insurance sector, Mr Hari Narayan said the general scenario is “satisfactory” and the complaints on claim refusals were not alarming.

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