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 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 (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.
Clarifications Issued by the Board
- Issue: 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.Clarification:
- ‘Life insurance business’ has been defined in Section 2(11) of the Insurance Act, 1938. It includes contracts of insurance upon human life, annuities upon human life, and any unit linked insurance policy or instruments providing both investment and insurance components.
- Life insurance companies provide services of insuring lives and charge premiums that may include investment components along with risk cover.
- As per Rule 32(4) of CGST Rules, the value of supply in life insurance business is determined by deducting the amount of premium allocated for investment/savings on behalf of the policyholder from the gross premium. The remaining portion is considered for GST.
- Understanding Taxability:
- The definition of ‘exempt supply’ under section 2(47) of CGST Act includes nil rated, wholly exempt, and non-taxable supplies.
- As per section 2(78) of CGST Act, non-taxable supply means a supply of goods or services not leviable to tax under CGST Act or IGST Act.
- The premium not included in taxable value as per Rule 32(4) cannot be treated as nil rated, wholly exempt, or non-taxable supply since life insurance services are taxable.
- Reversal of Input Tax Credit:
- Rule 42 of CGST Rules mandates reversal of input tax credit in certain scenarios involving exempt supplies.
- Since the premium portion not included in taxable value as per Rule 32(4) is neither an exempt supply nor a non-taxable supply, the input tax credit availed on such portion is not subject to reversal.
Conclusion
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. Therefore, there is no requirement for 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.
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