CBIC has clarified certain issues pertaining to ‘No Claim Bonus (NCB)’ allowed by the Insurance Companies and exemption from ‘e-invoicing’ with reference to an ‘Entity’ under GST, vide GST Circular 186/18/2022.
Clarification on Taxability of ‘No Claim Bonus (NCB)’ offered by the Insurance companies
Whether the insurance company’s deduction of NCB from the insured’s insurance premium can be considered as consideration for the supply provided by the insured to the insurance company in exchange for agreeing to the obligation to refrain from filing insurance claims during the previous year(s)?
When no claim is made by the insured person during the previous insurance period, the insurance companies deduct NCB from the gross insurance premium amount, according to industry practise(s). The customer/insured obtains an insurance policy to protect himself from any loss/injury under the terms of the policy. In lieu of NCB, the customer is under no contractual obligation to make insurance claims during any period covered by the policy.
As a result, CBIC has clarified that there is no supply provided by the insured to the insurance company in the form of agreeing to refrain from the act of lodging insurance claims during the previous year(s), and NCB cannot be considered a consideration for any supply provided by the insured to the insurance company.
Is the NCB provided by the insurance company to the insured an admissible discount for the purpose of determining the value of the insurance service supplied by the insurance company to the insured under GST?
Section 15(3)(a) of the CGST Act, 2017 says that any discount given before or at the time of supply will not be added to the value of the supply if it has been properly recorded on the invoice for that supply.
The insurance companies inform the insured of the availability of a discount in the form of a “NCB,” subject to certain conditions, in the insurance policy document itself and also provide the details of the “NCB” in the invoices. The pre-disclosure of the NCB amount in the policy documents and specific mention of the discount in the form of “NCB” in the invoice are in accordance with the conditions laid out in Section 15(3)(a) of the CGST Act, 2017.
CBIC has therefore clarified that “NCB” is a permissible deduction for the purpose of calculating the value of the insurance services supplied by the insurance company to the insured. As a result, where the deduction for NCB is provided in the invoice issued by the insurer to the insured, GST shall be levied on the actual insurance premium amount payable by policy holders to the insurer after the deduction for NCB mentioned on the invoice.
Clarification on Exemption from ‘e-invoicing’ under GST with reference to an ‘Entity’
Whether the exemption from mandatory e-invoice generation under Central Tax Notification 13/2020, dated March 21, 2020, as amended, is available for the entity as a whole or only for certain supplies made by the said entity?
As per the above notification, certain entities and sectors have been exempted from the mandatory generation of e-invoices under CGST Rule 48(4). The CBIC has clarified that the exemption from generating e-invoices applies to the entity as a whole and is not limited by the nature of the supply made by the entity.
As an example, a banking company that provides banking services may also be involved in the supply of some goods, such as bullion. According to the said Notification, the said banking company is exempt from the mandatory issuance of e-invoice for all supplies of goods and services, and thus will not be required to issue e-invoice with respect to any supply made by it.
CBIC GST Circular 186/18/2022 dt. 27/12/2022: Clarifications on ‘NCB’ and ‘e-Invoicing’ under GST
CBIC clarifies that NCB is a permissible deduction when calculating the value of insurance services supplied and that GST is payable on the net amount after NCB deduction. However, it is unclear whether CBIC will arrange for refunds in cases where insurers charged GST on NCB as well from 2017 onwards due to a lack of clarity.