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F. No. CBIC-20001/2/2022 - GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
New Delhi, Dated the 27th December, 2022
Circular No. 186/18/2022 - GST: GST on No Claim Bonus
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All) Madam/Sir,
Subject: Clarification on various issue pertaining to GST-reg.
Representations have been received from the field formations seeking clarification on certain issues with respect to –
- taxability of No Claim Bonus offered by Insurance companies;
- applicability of e-invoicing w.r.t an entity.
2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issues as under:
Taxability of No Claim Bonus offered by Insurance companies
Issue:
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)?
Clarification:
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.
Issue:
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?
Clarification:
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.
Clarification on applicability of e-invoicing w.r.t an entity
Issue:
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?
Clarification:
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 Tax Rules, 2017.
It is hereby clarified that the said 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.
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 supply made by it.
3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
📚 Frequently Asked Questions (FAQs): Circular No. 186/18/2022 - GST
Q1. What is Circular No. 186/18/2022-GST?
Answer: Circular No. 186/18/2022 clarifies the GST treatment of No Claim Bonus (NCB) offered by insurance companies and certain issues relating to e-invoicing. Regarding NCB, it confirms that the bonus is not consideration for any supply by the insured and should be treated as a discount.
Q2. Is No Claim Bonus taxable under GST?
Answer: No. The CBIC has clarified that No Claim Bonus is not consideration for any supply by the policyholder. Since there is no contractual obligation on the insured to avoid making a claim, no taxable supply arises merely because the policyholder had a claim-free year.
Q3. Why is No Claim Bonus not treated as a supply?
Answer: Because the insured is free to make an insurance claim whenever an insured event occurs. The insurance contract does not require the policyholder to refrain from claiming benefits. Therefore, remaining claim-free does not amount to supplying a service to the insurer.
Q4. Is No Claim Bonus treated as a discount?
Answer: Yes. The circular clarifies that No Claim Bonus is an admissible discount under Section 15(3)(a) of the CGST Act, provided it is disclosed before or at the time of supply and is properly reflected in the invoice.
Q5. On what amount is GST charged after No Claim Bonus?
Answer: GST is charged only on the actual premium payable after deducting the No Claim Bonus. Since the discount reduces the value of the insurance service, GST is calculated on the net premium rather than the original gross premium.
Q6. Does the policyholder provide a service by not making a claim?
Answer: No. A policyholder who does not make a claim is simply exercising their rights under the insurance contract. There is no agreement to perform or refrain from any act for consideration, so GST does not apply.
Q7. Which insurance policies are commonly eligible for No Claim Bonus?
Answer: No Claim Bonus is commonly available under motor insurance and certain health insurance policies. The GST clarification applies generally to insurance products where NCB is offered as a premium discount for claim-free policy periods.
Q8. Why was this clarification necessary?
Answer: The clarification removes doubts about whether No Claim Bonus could be taxed as consideration for agreeing not to make a claim. It provides certainty to insurers, policyholders, and tax authorities, ensuring uniform GST treatment across the insurance sector.
Q9. Does this circular change the GST law?
Answer: No. It does not amend the CGST Act. Instead, it explains how the existing provisions relating to valuation and taxable supplies should be interpreted in the context of No Claim Bonus.
Q10. Can insurers reduce GST because of No Claim Bonus?
Answer: Yes. Since the No Claim Bonus is treated as a permissible discount, GST should be calculated only on the reduced premium payable by the policyholder, provided the statutory conditions relating to discounts are satisfied.
Q11. Does this clarification benefit policyholders?
Answer: Yes. Policyholders benefit because GST is not charged on the discounted portion of the premium. This reduces the total renewal cost and ensures that tax is levied only on the actual premium paid.
Q12. What should insurance companies ensure while offering No Claim Bonus?
Answer: Insurance companies should clearly disclose the availability and amount of the No Claim Bonus in the policy documents and invoice. Proper documentation helps establish that the NCB qualifies as a permissible discount under Section 15(3)(a) of the CGST Act.
Conclusion
In simple terms, Circular No. 186/18/2022 settles an important question in the insurance industry by confirming that a No Claim Bonus is not a taxable supply made by the policyholder. Instead, it is a legitimate discount that reduces the value of the insurance service for GST purposes.
Download PDF: Circular No. 186/18/2022 - GST
More Information: https://taxinformation.cbic.gov.in/
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