On June 26, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 214/8/2024-GST. This circular explains how to treat life insurance premiums for GST purposes. It also addresses the reversal of input tax credit (ITC) for the part of life insurance premiums not included in the taxable value.
Key Highlights of the Circular
Clarification on Non-Taxable and Exempt Supplies
The circular states that the part of the life insurance premium not included in the taxable value, as per Rule 32(4) of the CGST Rules, is not considered an exempt or non-taxable supply. Therefore, businesses do not need to reverse the ITC on this part of the premium.
Understanding Life Insurance Business
The definition of ‘life insurance business’ includes any policy with both investment and insurance components. Premiums allocated for investment or savings are excluded from the taxable value. Meanwhile, the entire premium is considered for pure life insurance coverage.
Application of Rule 32(4) of CGST Rules
Rule 32(4) provides the method for determining the taxable value of life insurance services. It allows the exclusion of premiums allocated for investment or savings from the gross premium when calculating the taxable value.
No Reversal of ITC Required
The circular confirms that businesses do not need to reverse ITC for the part of life insurance premiums not included in the taxable value. Consequently, these amounts are not considered exempt or non-taxable supplies.
Practical Implications for Businesses
Insurance Companies
This clarification simplifies the compliance process for life insurance companies. It ensures uniformity in applying GST laws across different regions.
Policyholders
Businesses purchasing life insurance for their employees or other purposes can rest assured that they can claim ITC without worrying about reversal for the investment component of premiums.
Tax Professionals
This circular provides clear guidance, thereby reducing ambiguity and potential disputes regarding ITC claims related to life insurance premiums.
Action Steps for Businesses
Review Life Insurance Policies
Firstly, assess your current life insurance policies to understand the breakdown of premiums into risk cover and investment components. Secondly, ensure that your accounting practices accurately reflect the treatment of these premiums as per the new clarification.
Update Compliance Procedures
Incorporate the guidelines from this circular into your GST compliance processes. Additionally, communicate these changes to your finance and accounting teams to ensure consistent application.
Consult with Tax Advisors
Engage with your tax advisors to confirm that your ITC claims align with the latest circular. Furthermore, seek professional advice if you have complex insurance arrangements or significant premiums involved.
Conclusion
Circular No. 214/8/2024-GST brings much-needed clarity to the treatment of life insurance premiums under GST. By confirming that no ITC reversal is required for the non-taxable portion of premiums, the CBIC has streamlined compliance for businesses. Therefore, ensure your practices are updated to reflect these changes and consult with your tax advisors for a seamless transition.
For more information please refer below circular :
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