CBIC Circular on Reversal of Input Tax Credit for Life Insurance Premiums

editor — Thu, 27 Jun 2024 06:21:18 +0000

The CBIC has issued Circular No. 214/8/2024-GST dated June 26, 2024, providing clarity on the requirement of reversing input tax credit concerning the portion of premiums for life insurance policies that are not included in taxable value.

Background: The circular addresses concerns raised by stakeholders regarding whether the portion of insurance premiums, which under Rule 32(4) of the CGST Rules, is not considered in the taxable value for life insurance business, should be treated as pertaining to an exempt or non-taxable supply. This clarification aims to ensure consistency in the application of GST laws across different field formations.

Key Clarifications:

Nature of Insurance Business: The definition of "life insurance business" under Section 2(11) of the Insurance Act, 1938, includes contracts of insurance on human life, encompassing components like investment-linked policies. The value of such services is determined under Rule 32(4) of the CGST Rules, which may exclude certain premiums allocated for investment or savings.
Tax Treatment: According to Section 2(47) and Section 2(78) of the CGST Act, an exempt supply includes goods or services wholly exempted from tax or considered non-taxable. However, premiums not included in the taxable value under Rule 32(4) do not qualify as exempt or non-taxable supplies. Therefore, there is no requirement to reverse input tax credit under Rule 42 or Rule 43 of the CGST Rules, in conjunction with Section 17(1) and (2) of the CGST Act, for such premiums.
Conclusion: The circular conclusively states that the portion of premiums for taxable life insurance policies not included in taxable value as per Rule 32(4) of the CGST Rules does not pertain to a non-taxable or exempt supply. Hence, there is no obligation to reverse input tax credit based on these provisions.

Stakeholders are encouraged to disseminate the contents of this circular through suitable trade notices for broader understanding and compliance.

For further details, refer to Circular No. 214/8/2024-GST dated June 26, 2024, accessible here

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CBIC Circular on Reversal of Input Tax Credit for Life Insurance Premiums

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