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

The Central Board of Indirect Taxes and Customs (CBIC) clarified that life insurance premiums not included in taxable value do not require reversal of Input Tax Credit (ITC) under GST rules. This clarification addresses confusion on whether such premiums, excluded under Rule 32(4) of the CGST Rules, should lead to ITC reversal. The CBIC defined life insurance under the Insurance Act, noting its dual nature involving investment and insurance components. Despite portions of premiums not contributing to taxable value, they do not qualify as exempt or non-taxable supplies under GST definitions. Therefore, according to Rules 42 and 43 of the CGST Rules, along with Sections 17(1) and 17(2) of the CGST Act, no ITC reversal is mandated for these premiums. This decision underscores the distinction between exempt, non-taxable, and taxable supplies, ensuring compliance clarity for stakeholders in the insurance sector.