No ITC Reversal on Non-Taxable Portion u/r 32(4) of GST Rules required for Life Insurance Premiums: CBIC issues Circular [Read Circular]

The Central Board of Indirect Taxes and Customs ( CBIC ) has issued a Clarification on the requirement of reversal of ITC in respect of the portion of the premium for life insurance policies which is not included in taxable value, stating that no Input Tax Credit ( ITC ) is Reversal required for Non-Taxable Portion under Rules 32(4) of GST Rules for Life Insurance Premiums.

Representations from trade and field formations sought clarity on whether insurance premiums excluded from taxable value under Rule 32(4) of the CGST Rules, 2017, should be treated as exempt or non-taxable supplies, necessitating input tax credit reversal.

The board clarified that Life insurance, as defined under Section 2(11) of the Insurance Act, 1938, includes policies with components of investment and insurance. The value of supply for life insurance is determined by deducting investment-related premiums from the gross premium, per Rule 32(4) of the Central Goods and Services Tax Rules.

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According to Section 2(47) of the Central Goods and Services Tax Act, an exempt supply includes supplies attracting nil tax, wholly exempt supplies, or non-taxable supplies. However, life insurance services are taxable, and the non-includable portion of the premium does not fall under these categories.

Rule 42 of the CGST Rules mandates input tax credit reversal only for supplies partly used for taxable and exempt purposes. Since the non-includable premium portion is not considered exempt or non-taxable, no input tax credit reversal is required.

The Central Board of Indirect Taxes and Customs thus clarified that insurance premiums not included in taxable value do not necessitate Input Tax Credit ( ITC ) reversal under Rules 42 and 43 of the CGST Rules, read with Sections 17(1) and 17(2) of the CGST Act.

To Read the full text of the Order CLICK HERE

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