Value of supply of services in relation to life insurance business

Rule 6(4) of draft GST Valuation Rules provides that the value of supply of services in relation to life insurance business shall be:

(a) the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such amount is intimated to the policy holder at the time of supply of service;

(b) in case of single premium annuity policies other than (a), 10% of single premium charged from the policy holder; or

(c) in all other cases, 25% per cent. of the premium charged from the policy holder in the first year and twelve and a half per cent. of the premium charged from policy holder in subsequent years:

Provided that nothing contained in this sub-rule shall apply where the entire premium paid by the policy holder is only towards the risk cover in life insurance.

Issue

The rules in the case of Single premium annuity policy and Life insurance policy with investment portion has put the composition rate at 25% and 10% respectively from 1.4% and 3.5% for first year and 1.75 % from second year onwards for the respective policies under service tax. When service tax rate was 14% the composition rate was 1.4% and 3.5% for first year and 1.75 % from second year and when the expected GST rate is 18% for such services it seems the rate has no rationale.

Suggestion

It is suggested that rates of 10% & 25% be rationalised and brought at par with the rates fixed up under service tax valuation rules. For example if GST rate is 18% for said services the composition rate may be 1.8% for the first year etc.

Source ICAI Suggestions on GST Rules Submitted to Govt of India