New
February 20, 2023
By
Paramita

GST on No Claim Bonus & Applicability of E-invoicing w.r.t an entity

GST or the Goods and Services Tax is a tax levied on the sale of goods and services in India. It is an indirect tax that is designed to replace all other indirect taxes, such as VAT, service tax, and excise duty. As a result, GST has become a significant tax reform in India and has been implemented across the country on the 1st of July, 2017. But, with the introduction of GST, there have been many questions on how different aspects of business will be taxed, including the No Claim Bonus and E-invoicing. In this article, we will discuss how GST applies to No Claim Bonus and the applicability of E-invoicing w.r.t an entity.

What is No Claim Bonus (NCB)?

NCB is a discount or a benefit given by insurance companies to policyholders who did not make any claims in the previous year. This bonus is a reward for safe driving practices and encourages drivers to be more cautious on the road. The discount can range from 20% to 50% and can be used to reduce the premium of the insurance policy.

NCB is available on all types of motor insurance policies, including two-wheeler insurance, car insurance, and commercial vehicle insurance. The bonus is transferable from one insurance company to another when the policyholder switches their insurer.

GST on No Claim Bonus

NCB is a discount offered by an insurance company on the insurance premium paid by the policyholder. Under GST, the insurance premium paid by the policyholder is subject to a tax rate of 18%. Therefore, it is important to understand how GST applies to NCB.

According to the GST laws, any amount received as a discount on the supply of goods or services is subject to GST. This means that NCB is subject to GST. However, the GST is levied on the premium amount after deducting the NCB. Hence, the effective tax rate is lower than 18% on the premium amount.

To understand this better, let's take an example. Suppose the premium for a car insurance policy is Rs. 10,000, and the NCB is 20% or Rs. 2,000. The insurance company will charge GST on the premium amount after deducting the NCB, which is Rs. 8,000. Therefore, the GST charged will be 18% of Rs. 8,000, which is Rs. 1,440. The total amount payable by the policyholder will be Rs. 8,000 + Rs. 1,440, which is Rs. 9,440.

What is E-invoicing?

E-invoicing is a new system of generating and managing invoices electronically. It is an advanced system that is designed to simplify the invoicing process and reduce errors. Under this system, businesses have to generate invoices on their internal systems and then upload them to the GST portal. The GST portal will validate the invoice and assign a unique Invoice Reference Number (IRN) to it. The IRN is mandatory for any invoice that is generated under the new system.

The government has introduced E-invoicing to curb tax evasion and improve the efficiency of the GST system. The new system will enable the government to track the movement of goods and services and prevent fraud. E-invoicing will also eliminate the need for businesses to file multiple returns and reduce the compliance burden.

Applicability of E-invoicing w.r.t an entity

The government has made E-invoicing mandatory for businesses with an annual turnover of Rs. 500 crore or more from 1st October 2021. However, the government has also provided an exemption to certain categories of businesses. The exemption is available to businesses that are engaged in the following activities:

  • Insurance
  • Banks and financial institutions
  • Non-banking financial companies (NBFC)
  • Goods transport agency (GTA)
  • Passenger transportation service providers
  • Service providers of securities

The exemption is also available to businesses that have a turnover of less than Rs. 50 crore in the previous financial year. However, these businesses will have to generate invoices using the new system from 1st January 2022.

Conclusion

GST on NCB and the applicability of E-invoicing w.r.t an entity are crucial aspects of the GST system that businesses need to understand. NCB is subject to GST, but the tax is levied on the premium amount after deducting the NCB. E-invoicing is a new system of generating and managing invoices electronically that is designed to simplify the invoicing process and reduce errors. The government has made E-invoicing mandatory for businesses with an annual turnover of Rs. 500 crore or more from 1st October 2021, but certain categories of businesses are exempt from this requirement.

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