Post 53rd GST Council meeting held on 22.06.2024, CBIC has issued 23 Circulars bearing Nos. 207 to 229, all dated between 26.06.2024 and 15.07.2024 clarifying taxability, place of supply, time of supply etc on various issues relating to goods and services.
This Part-3 of the Article offers the gist of Circular No. 213, 214 and 215 which are on the following topics:
Taxability of ESOP / ESPP / RSU issued by company to its employees - Circular No. 213/7/2024-GST dated 26.06.2024
Based on the recommendation of the 53rd GST Council meeting held on 22.06.2024, CBIC has issued clarification on the taxability of ESOP / ESPP / RSU provided by a company to its employees through its overseas holding company -
- Some of the Indian companies offer their employees the option to receive securities or shares under Employee Stock Option (ESOP) / Employee Stock Purchase Plan (ESPP) / Restricted Stock Unit (RSU) of their foreign holding company as part of their compensation package,
- CBIC has clarified that -
- Securities are neither considered as "goods" nor "services"
- Purchase or sale of securities / shares, in itself, is neither a supply of goods nor a supply of services.
- GST is not leviable on such transactions of sale / purchase / transfer of securities / shares.
- ESOP / ESPP / RSU are offered by companies to their employees to motivate them to perform better, and to retain the employees hence it becomes a part of remuneration, falling under Entry 1 of Schedule III of the CGST Act
- These should be treated neither as supply of goods nor as supply of services. Therefore, GST is not leviable on the compensation paid to the employee by the employer as per the terms of employment contract which involve transfer of securities / shares of the foreign holding company to employees of domestic subsidiary company.
- If the foreign holding company charges any additional fee, markup, or commission from the domestic subsidiary company for issuing such ESOP / ESPP / RSU to the employees of the domestic subsidiary company, then the same shall be considered to be in nature of consideration for the supply of services of facilitating / arranging the transaction in securities / shares by the foreign holding company to the domestic subsidiary company, GST will be leviable on RCM basis on such import of services from the foreign holding company.
ITC Reversal in respect of premium paid for life insurance policy - Circular No. 214/8/2024-GST dated 26.06.2024
Based on the recommendation of the 53rd GST Council meeting held on 22.06.2024, CBIC has issued clarification on whether the amount of insurance premium, which is not included in the taxable value as per Rule 32(4) of CGST Rules, 2017 applicable for life insurance business, shall be treated as pertaining to a non-taxable supply / exempt supply for the purpose of reversal of Input Tax Credit as per section 17(1) of CGST Act, 2017 read with Rule 42 and 43 of CGST Rules, 2017 -
- There is no doubt about taxability of supply of service of providing life insurance services by the insurance company to the insured / policy holder as it is neither nil rated, nor there is any notification issued under section 11 of CGST Act by virtue of which the said service or any portion of the said service has been exempted from GST.
- The supply can be considered as a non-taxable supply only when it is not leviable to tax under the CGST Act or under the IGST Act. It is not a case where the tax is not leviable on the supply of life insurance services provided by life insurance companies to the insured / policy holder.
- The value of such supply of service in respect of life insurance business as determined under Rule 32(4) of CGST Rules, 2017 may not include some portion of gross premium as per methodology provided in this rule. This portion of premium which is not includible in taxable value as per provisions of Rule 32(4) of CGST Rules is neither nil rated, nor wholly exempted from tax under section 11 of CGST Act and also not a non-taxable supply. Therefore, just because some amount of consideration is not included in value of taxable supply as per the provisions of the statute, it cannot be said that the said portion of consideration becomes attributable to a non-taxable or exempt supply.
- Rule 42 provides for reversal of ITC only where Section 17(2)(1) gets attracted.
- Amount of premium for taxable life insurance policies, which is not included in the taxable value as determined under Rule 32(4) of CGST Rules, 2017 cannot be considered as pertaining to a non-taxable or exempt supply
- There is no requirement of reversal of ITC as per provisions of Rule 42 /43 of CGST Rules, 2017, read with Section 17(1) and (2) of CGST Act, 2017.
Taxability of salvage / wreckage value of motor vehicle - Circular No. 215/9/2024-GST dated 26.06.2024
Based on the recommendation of the 53rd GST council meeting held on 22.06.2024, CBIC has issued clarification on taxability of salvage / wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle, i.e. whether in case of motor vehicle insurance, GST is payable by the insurance company on salvage / wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle -
- Situations where the deduction of the value of salvage from the insurance settlement amount, is as per the terms of the insurance contract, and cannot be said to be consideration for any supply being made by insurance company, there does not appear to be any supply of salvage by insurance company and, there would be no liability under GST on the part of insurance company in respect of this salvage value.
- Situations where the insurance contract provides for settlement of claim on deduction of the value of salvage or wreckage from Insured Declared Value (IDV) while settling the insurance claim, the ownership of the salvage or wreckage remains with the insured and the insurance companies are not liable to discharge GST liability on the same.
- Situations where the insurance contract provides for settlement of claim on full IDV, without deduction of value of salvage / wreck, the insured will be paid for full claim amount and in such cases the salvage / wreckage becomes the property of the insurance company after settling the claim and the insurance company is obligated to deal with the same or dispose of the same, the outward GST liability on disposal / sale of the salvage is to be discharged by the insurance companies.
(To be continued…)
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