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Circular No.-214/8/2024-GST
F.No. CBIC-20001/4/2024-GST
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
North Block, New Delhi
Dated the 26th June, 2024
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Subject: Clarification on the requirement of reversal of input tax credit in respect of
the portion of the premium for life insurance policies which is not included in taxable
value-reg.
Representations have been received from the trade and field formations seeking
clarification on the issue as to whether the amount of insurance premium, which is not
included in the taxable value as per Rule 32(4) of Central Goods and Services Tax Rules,
2017 (hereinafter referred to as the “CGST Rules”) applicable for life insurance business,
will be treated as pertaining to an exempt supply/ non-taxable supply and whether the input
tax credit availed in respect of such amount shall be required to be reversed or not.
2.
In order to clarify the issue and to ensure uniformity in the implementation of the
provisions of law across the field formations, the Board, in exercise of its powers conferred
by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to
as the “CGST Act”), hereby clarifies the issues as under:
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S.No. Issue
Clarification
1.
Whether the amount of insurance
premium, which is not included in
the taxable value as per Rule
32(4) of CGST Rules applicable
for life insurance business, shall
be treated as pertaining to a non-
taxable supply/ exempt supply for
the purpose of reversal of Input
tax credit as per section 17(1) of
CGST Act read with Rule 42 &
43 of CGST Rules.
‘Life insurance business’ has been defined in
Section 2(11) of the Insurance Act, 1938 as
below:
“2(11) life insurance business means the
business
of
effecting
contracts
of
insurance upon human life, including
any contract whereby the payment of
money is assured on death (except death
by accident only) or the happening of
any contingency dependent on human
life, and any contract which is subject to
payment of premiums for a term
dependent on human life and shall be
deemed to include--
(a)
the granting of disability and
double or triple indemnity accident
benefits, if so provided in the
contract of insurance,
(b)
the granting of annuities upon
human life ; and
(c)
the granting of superannuation
allowances and benefit payable
out of any fund applicable solely to
the relief and maintenance of
persons engaged or who have been
engaged
in
any
particular
profession, trade or employment
or of the dependents of such
persons ;
Explanation. -- For the removal of
doubts, it is hereby declared that life
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insurance business shall include any
unit linked insurance policy or scrips or
any such instrument or unit, by
whatever name called, which provides a
component
of
investment
and
a
component of insurance issued by an
insurer referred to in clause (9) of this
section.
2.
Life
insurance
companies
are
providing service of insuring the life of the
insured
and
in
return,
are
charging
consideration in the form of premium from the
insured. A number of life insurance companies
are providing policies which may consist of a
component of investment in addition to the
component for the risk cover of the life
insurance and accordingly, in such cases, the
premium charged also includes the component
which is allocated for investment or saving on
behalf of the policy holder. As per definition
of ‘Life insurance business’ provided in
Section 2(11) of the Insurance Act, 1938, life
insurance business includes any unit linked
insurance policy or scrips or any such
instrument or unit, by whatever name called,
which provides a component of investment
and a component of insurance issued by an
insurer. Accordingly, such life insurance
policies, which also include a component of
investment along with the component of risk
cover for life insurance, are also covered under
life insurance business.
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2.1
It is mentioned that value of supply of
services in relation to life insurance business is
to be determined as per provisions of sub-rule
(4) of rule 32 of CGST Rules. The said sub-
rule provides that the value of supply of
services in respect of life insurance business is
primarily to be determined by deducting the
amount
of
premium
allocated
for
investment/savings on behalf of the policy
holder from the gross premium charged from
the policy holder. The said sub-rule also
provides for determination of value of supply
of such services based on certain percentage of
the gross premium in other situations.
However, where the entire premium is only
towards the risk cover in life insurance, the
value of supply is not required to be
determined under the said sub-rule as in such
cases whole of the consideration i.e. gross
premium is towards life insurance services.
2.2
As per section 2(47) of the CGST Act,
exempt supply means supply of any goods or
services or both which attracts nil rate of tax
or which may be wholly exempt from tax
under section 11, or under section 6 of the
Integrated Goods and Services TaxAct, 2017
(hereinafter referred to as the “IGST Act”),
and includes non-taxable supply. The said
definition of exempt supply has the following
three limbs: -
(a) Supply of service which is nil rated;
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(b) Supply of service which is wholly
exempted from tax under section 11 of
CGST Act or under Section 6 of IGST
Act; or
(c) Supply of service which is non-
taxable supply.
2.2.1. Further, as per section 2(78) of CGST
Act, non-taxable supply means a supply of
goods or services or both which is not leviable
to tax under the CGST Act or under the IGST
Act.
2.2.2 It is mentioned that there is no doubt
about taxability of supply of service of
providing life insurance services by the
insurance company to the insured/ policy
holder but the only issue is regarding the
treatment of the amount of premium which is
not included in the taxable value of supply, as
determined under the provisions of Rule 32(4)
of CGST Rules. The service of providing life
insurance cover is neither nil rated, nor there is
any notification issued under section 11 of
CGST Act by virtue of which the said service
or any portion of the said service has been
exempted from GST.
2.2.3 It is also mentioned that the supply can
be considered as a non-taxable supply only
when it is not leviable to tax under the CGST
Act or under the IGST Act. It is not a case
where the tax is not leviable on the supply of
life insurance services provided by life
insurance companies to the insured/policy
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holder. The value of the said supply of service
in respect of life insurance business as
determined under Rule 32(4) of CGST Rules,
2017 may not include some portion of gross
premium as per methodology provided in the
said rule. This portion of premium which is
not includible in taxable value as per
provisions of Rule 32(4) of CGST Rules is
neither nil rated, nor wholly exempted from
tax under section 11 of CGST Act and also not
a non-taxable supply. Therefore, just because
some amount of consideration is not included
in value of taxable supply as per the provisions
of the statute, it cannot be said that the said
portion of consideration becomes attributable
to a non-taxable or exempt supply.
2.2.4 Further, Rule 42 of the CGST Rules
provides for reversal of input tax credit in
certain scenarios. As per the said rule, only
that input tax credit which attract the
provisions of sub-section (1) and sub-section
(2) of Section 17 of the CGST Act needs to be
determined and reversed thereof. Further, sub-
section (1) and sub-section (2) of Section 17 of
the CGST Act restrict the amount of credit
only in a case where the registered person uses
the goods or services partly for business or
other purposes or partly for making taxable
supplies or exempt supplies. However, as
discussed in Para 2.2.3 above, the portion of
premium, which is not includible in taxable
value of supply as per Rule 32(4) of CGST
Rules, cannot be considered as pertaining to an
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3.
It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
4.
Difficulty, if any, in implementation of this Circular may please be brought to the
notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
exempt supply.
3. In view of this, it is clarified that the amount
of the premium for taxable life insurance
policies, which is not included in the taxable
value as determined under rule 32(4) of CGST
Rules, cannot be considered as pertaining to a
non-taxable or exempt supply and therefore,
there is no requirement of reversal of input
tax credit as per provisions of Rule 42 or rule
43 of CGST Rules, read with sub-section (1)
and sub-section (2) of Section 17 of CGST
Act, in respect of the said amount.
