Clarification on taxability of no claim bonus and applicability of e-invoicing under GST
Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No.186 dated 27th December, 2022 to clarify on taxability of no claim bonus offered by Insurance companies and applicability of e-invoicing w.r.t an entity.
A. Taxability of no claim bonus offered by Insurance companies:
1. Insurance companies deduct no claim bonus from the gross insurance premium amount, when no claim is made by the insured person during the previous insurance period(s). The customer/ insured procures insurance policy to indemnify himself from any loss/ injury as per the terms of the policy, and is not under any contractual obligation not to claim insurance claim during any period covered under the policy, in lieu of no claim bonus.
It has been clarified that, there is no supply provided by the insured to the insurance company in form of agreeing to the obligation to refrain from the act of lodging insurance claim during the previous year(s) and no claim bonus cannot be considered as a consideration for any supply provided by the insured to the insurance company.
2. As per Section 15(3) of the CGST Act, value of supply shall not include any discount which is given before or at the time of supply if such discount has been duly recorded in the invoice issued in respect of such supply. The insurance companies make the disclosure of the fact of availability of discount in form of no claim bonus, subject to certain conditions, to the insured in the insurance policy document itself and also provide the details of the no claim bonus in the invoices also.
It is clarified that no claim bonus is a permissible deduction for the purpose of calculation of value of supply of the insurance services provided by the insurance company to the insured. Accordingly, GST shall be leviable on actual insurance premium amount, payable by the policy holders to the insurer, after deduction of no claim bonus mentioned on the invoice.
B. Applicability of e-invoicing w.r.t an entity:
Certain entities/sectors have been exempted from mandatory generation of e-invoices e.g. an insurance or a banking company or a financial institution, including NBFC; goods transport agency; passenger transportation service provider; cinematograph films provider in multiplex screens and Special Economic Zone units.
It has been clarified that the exemption from generation of e-invoices is for the entity as a whole and is not restricted by the nature of supply being made by the said entity.
For example: A Banking Company providing banking services, may also be involved in making supply of some goods, including bullion. The said banking company is exempted from 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.
