Circular No.: 214/8/2024-GST
Date of Circular: 26th June 2024
Relevant Sections and Rules:
- CGST Act, 2017:
- Section 17(1) & 17(2): Apportionment and reversal of input tax credit
- Section 168(1): Power to issue instructions
- CGST Rules, 2017:
- Rule 32(4): Valuation of life insurance services
- Rule 42 & Rule 43: Reversal of ITC
- Insurance Act, 1938:
- Section 2(11): Definition of life insurance business
Clarification Provided – Reversal of ITC for Non-taxed Portion of Life Insurance Premium:
- Background:
Life insurance policies often involve a split between investment/savings and risk cover components. Rule 32(4) of CGST Rules allows insurers to exclude the investment portion from taxable value. This led to confusion about whether the excluded portion of premium should be treated as an exempt or non-taxable supply, requiring proportional reversal of ITC under Rule 42/43 read with Section 17(1)/(2). - Clarification Issued – No Reversal of ITC Required:
- The entire life insurance service is taxable under the CGST Act.
- Merely because a portion of the premium is not included in the taxable value (due to Rule 32(4)), it does not mean that portion relates to an exempt or non-taxable supply.
- There is no exemption notification under Section 11 of CGST Act or Section 6 of IGST Act for such portion.
- Hence, that portion cannot be treated as exempt or non-taxable supply.
- Conclusion:
The Board has clarified that:
“The amount of premium for taxable life insurance policies which is not included in taxable value under Rule 32(4) is not an exempt or non-taxable supply. Therefore, there is no requirement for reversal of ITC under Rule 42 or 43 read with Section 17(1)/(2).”
Source: Circular No.: 214/8/2024-GST
