This circular provides clarification on whether input tax credit (ITC) reversal is required for the portion of life insurance premium that is excluded from taxable value under Rule 32(4) of the CGST Rules, 2017.

It explains that in life insurance business, part of the premium may represent an investment or savings component and is therefore excluded from taxable value. However, this excluded portion is not treated as an exempt or non-taxable supply under the CGST Act since the service of life insurance is taxable and no exemption has been granted under Section 11 of the Act.

Accordingly, since the excluded premium portion does not fall within the definition of exempt or non-taxable supply, no ITC reversal is required under Sections 17(1) and (2) of the CGST Act read with Rules 42 and 43 of the CGST Rules.