MM TAX CLUB

S. No.

Issue

Clarification

Taxability of No Claim Bonus offered by Insurance companies

1

Whether    the    deduction    on account   of   No   Claim   Bonus allowed     by     the     insurance company   from   the   insurance premium payable     by     the insured,  can  be  considered  as consideration   for   the   supply provided  by  the  insured  to  the insurance company, for agreeing  to  the  obligation  to refrain  from  the  act  of  lodging insurance    claim    during    the previous year(s)?

As  per  practice  prevailing  in  the  insurance sector,   the   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  is,  therefore,  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

Whether    No    Claim    Bonus provided    by    the    insurance company  to  the  insured  can  be considered   as   an   admissible discount   for   the   purpose   of determination    of    value    of supply   of   insurance   service provided    by    the    insurance company to the insured?

As per clause (a) of sub-section (3) of section 15 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. The pre-disclosure of NCB   amount   in   the   policy   documents   and specific mention of the discount in form of No Claim  Bonus  in  the  invoice  is  in  consonance with  the  conditions  laid  down  for  deduction  of discount from the value of supply under clause (a) of sub-section (3) of section 15 of the CGST Act.It  is,  therefore,  clarified  that  No  Claim  Bonus (NCB)  is  a  permissible  deduction  under  clause (a) of sub-section (3) of section 15 of the CGST Act  for  the  purpose  of  calculation  of  value  of supply of the insurance services provided by the insurance company to the insured. Accordingly, where  the  deduction  on  account  of  No  claim bonus  is  provided  in  the  invoice  issued  by  the insurer to the insured, 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

3

Whether  the  exemption  from mandatory   generation   of   e-invoices in terms of Notification No. 13/2020-Central  Tax,  dated  21stMarch, 2020,as  amended,  is  available for   the   entity   as   whole,   or whether  the  same  is  available only    in    respect    of    certain supplies   made   by   the   said entity?

In  terms  of Notification  No.  13/2020-Central Tax dated 21stMarch, 2020, as amended, certain entities/sectors have    been    exempted    from mandatory generation of e-invoices as per sub-rule (4) of rule 48 of Central Goods and Services TaxRules,  2017.  It  is  hereby  clarified  that  the said exemption from generation of e-invoicesis for the entity as a whole and is not restricted by the  nature  of  supply  being  made  by  the  said entity. Illustration:  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  in  terms of Notification No. 13/2020-Central Tax, dated 21stMarch, 2020,as amended, for all supplies of goods and services and thus, will not be required to  issue  e-invoice  with  respect  to  any  supplymade by it.