Impact of GST on Insurance Services
As we know that GST is applicable on supply of goods or supply of services. Accordingly, GST is also applicable on insurance services supplied by the insurance companies. The insurance companies provide various types of insurance services like health insurance, life insurance, building insurance, stock insurance etc. In this article we are going to discuss in detail about the GST implications on services provided by the insurance companies & the valuation principles applicable for insurance companies.
As we know that GST is applicable on supply of goods or supply of services. Accordingly, GST is also applicable on insurance services supplied by the insurance companies. The insurance companies provide various types of insurance services like health insurance, life insurance, building insurance, stock insurance etc. In this article we are going to discuss in detail about the GST implications on services provided by the insurance companies & the valuation principles applicable for insurance companies.
Under CGST Rules 2017 there is a special provisions prescribed for the valuation
of life insurance business. Rule 32(4) of CGST Rules 2017 states that the value
of supply of services in relation to life insurance business shall be;
(a) the gross premium charged from a policy holder reduced by the amount
allocated for investment, or savings on behalf of the policy holder, if such an
amount is intimated to the policy holder at the time of supply of service;
(b) in case of single premium annuity policies other than (a), ten per cent. of
single premium charged from the policy holder; or
(c) in all other cases, twenty five per cent. of the premium charged from the
policy holder in the first year and twelve and a half per cent. of the premium
charged from the policy holder in subsequent years:
Provided that nothing contained in this sub-rule shall apply where the entire
premium paid by the policy holder is only towards the risk cover in life
insurance.
From the above it is clear that in respect of life insurance premium collected
by the insurance companies, the GST would not be applicable on entire premium
charged by the company. GST would be applicable on reduced amount. However, if
the life insurance policy is taken only for risk coverage, then entire premium
would be chargeable to tax.
In this respect a question that usually arise is 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?.
The CBIC has also issued a Circular No. 214/8/2024-GST wherein it was clarified
that 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 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 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.
Also it is important to know that there is an exemption provided under Notification No. 12/2017 CT(R) in respect of services of life insurance business & general insurance business provided by specific entities subject to certain conditions. The relevant entries of Notification No. 12/2017 CT(R) which provides exemptions in respect of services of life insurance business & general insurance business are serial number 28, 29, 29A, 29B, 30, 35, 36, 36A, 39 & 40 of Notification No. 12/2017 CT(R).
In respect of insurance services the CBIC has also issued various other circulars which are as follows;
GST on No Claim Bonus:
After a decision was reached in
the 48th GST Council meeting, the CBIC clarified the applicability of GST on 'No
Claim Bonuses' via Circular No. 186/18/2022-GST.
Insurance companies typically offer their customers a 'No Claim Bonus' in cases
where there have been no insurance claims made during the period of insurance.
The amount is offered at the time of renewal of the insurance policy as a form
of reward or discount and is deducted from the premium to be paid.
As per the Circular, the customer or insured person procures an insurance policy
to indemnify themselves from any loss or injury as per the terms of the policy
and are not under any contractual obligation to not claim insurance during the
insurance period. There is no supply provided by the insured person to the
insurance company by not lodging insurance claims during the insurance period.
As per clause Section 15(3)(a) of the CGST Act, the value of supply shall not
include any discount given before or at the time of supply if the same has been
recorded on the invoice. Hence, the 'No Claim Bonus' cannot be considered as a
consideration for any supply provided and is treated as a discount and deducted,
and there will be no GST applicable on the same.
Whether the insurance company is
liable to pay GST on the salvage/ wreckage value earmarked in the claim
assessment of the damage caused to the motor vehicle?
In cases where due to the conditions mentioned in the contract itself, general
insurance companies are deducting the value of salvage as deductibles from the
claim amount, the salvage remains the property of insured and insurance
companies are not liable to discharge GST liability on the same. However, in
cases, where the insurance claim is settled on full claim amount, without
deduction of value of salvage/ wreckage (as per the terms of the contract), the
salvage becomes the property of the insurance company and the insurance company
will be obligated to discharge GST on supply of salvage to the salvage buyer.
The insurance companies, which
are engaged in providing general insurance services in respect of insurance of
motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred
by the policyholders and settle the claims in two modes i.e., Cashless or
Reimbursement. Whether ITC is available to insurance companies in respect of
repair expenses reimbursed by the insurance company in case of reimbursement
mode of claim settlement.
It is clarified that ITC is available to Insurance Companies in respect of motor
vehicle repair expenses incurred by them in case of reimbursement mode of claim
settlement.
RCM on Services supplied by an insurance agent to insurance companies:
The insurance agent is the person
who provides the services to insurer and also the insurance company. The
services provided by an insurance agent to any person carrying on insurance
business i.e., insurance companies are covered RCM as per serial number 7 of
NN
13/2017 (R). Accordingly, GST would be payable by the insurance companies under RCM
on services received from insurance agent.
Classification of services:
Under GST Law the services of insurance are broadly classifiable under the
following categories;
Group 99713 : Insurance and pension services (excluding reinsurance services)
Group 99714 : Reinsurance services
Group 99716 : Services auxiliary to insurance and pensions
All of these are taxable @ 18%
Disclaimer: The information given in this article is solely for
purpose of understanding the law. It is completely based on the interpretation
of the author and cannot be constituted as a legal advise, the author of this
article and Lawcrux team is not responsible for any legal issues if arises on
the basis of the interpretation given above.