Finance and Insurance Exemptions: Entries 27 to 40

Finance and Insurance Exemptions explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The exemption on financial services is narrower than most people assume. What is exempt is the consideration represented by interest or discount — not the service of lending. Every fee that sits beside the interest is taxable, and the entry says so in its own proviso.

Entry 27 exempts (a) services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, other than interest involved in credit card services, and (b) inter se sale or purchase of foreign currency amongst banks or authorised dealers or between banks and such dealers. Entries 28 to 36A exempt a list of named insurance and pension schemes; entry 34 exempts settlement of an amount up to ₹2,000 in a single transaction by a payment gateway through credit card, debit card, charge card or other payment card; and entries 39 and 40 exempt business facilitators and business correspondents in relation to rural branch accounts.

Entry 27(a): interest and discount only

The words that matter are "in so far as the consideration is represented by way of interest or discount".

The exemption attaches to a form of consideration, not to a person or a transaction. A bank's loan produces interest — exempt — and a processing fee, documentation charge, prepayment penalty, cheque return charge and inspection fee — all taxable. The exemption does not extend to them merely because they arise on the same loan account.

"Interest" — para 2(zk): "interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised."

Two exclusions in the definition. A service fee or other charge on borrowed money is not interest — this is the statutory basis for taxing loan fees. And a charge on an unutilised credit facility — a commitment charge on an undrawn line — is not interest either, because there is no money borrowed to bear interest.

And credit cards are carved out. The entry excepts "interest involved in credit card services", so revolving credit card interest is taxable, unlike interest on a personal loan of the same amount from the same bank.

Entry 27(b): the inter-bank foreign exchange limb

Exempt: inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange, or amongst banks and such dealers.

Note who is excluded. The exemption is for the inter-bank market. A bank selling foreign currency to a customer is outside it, and is valued under rule 32(2) of the CGST Rules — either on the difference between the buying/selling rate and the RBI reference rate, or on the slab basis of 1% / 0.5% / 0.1% with the ₹250 floor and ₹60,000 ceiling.

The insurance and pension entries

The design here is scheme-by-scheme, not category-wide. General and life insurance are taxable; a specific list of government-backed schemes is exempt:

• Entry 28 — general insurance business under the Hut Insurance Scheme, Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna, Scheme for Insurance of Tribals, Janata Personal Accident Policy and Gramin Accident Policy, Group Personal Accident Policy for Self-Employed Women, Agricultural Pumpset and Failed Well Insurance, premia collected on export credit insurance, Restructured Weather Based Crop Insurance Scheme, Jan Arogya Bima Policy, Pradhan Mantri Fasal Bima Yojana, Pilot Scheme on Seed Crop Insurance, Central Sector Scheme on Cattle Insurance, Universal Health Insurance Scheme, Rashtriya Swasthya Bima Yojana, Coconut Palm Insurance Scheme, Pradhan Mantri Suraksha Bima Yojna and Niramaya Health Insurance Scheme;
• Entry 29 — life insurance business under the Janashree Bima Yojana, Aam Aadmi Bima Yojana, Life micro-insurance product as approved by the IRDAI having maximum cover of ₹2,00,000, Varishtha Pension Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Vaya Vandan Yojana;
• Entry 29A — life insurance provided by the Naval Group Insurance Fund to personnel of the Coast Guard;
• Entry 30 — services by the Employees' State Insurance Corporation to persons governed under the Employees' State Insurance Act, 1948;
• Entry 31 — services to the ESIC by way of collection of contribution or otherwise;
• Entry 31A — services by the Central Government, State Government or Union territory to their undertakings or PSUs by way of guaranteeing loans taken by them from financial institutions;
• Entry 32 — services provided by the Employees Provident Fund Organisation to persons governed under the Employees Provident Funds and the Miscellaneous Provisions Act, 1952;
• Entry 33 — services by the Insurance Regulatory and Development Authority of India to insurers;
• Entry 35 — services of general insurance business provided under schemes such as those listed in entry 28, extended by the Government;
• Entry 36 — services of life insurance business provided by way of the annuity under the National Pension System regulated by the PFRDA;
• Entry 36A — services by the Securities and Exchange Board of India by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market.

The pattern is worth stating plainly. These are social security and financial inclusion schemes the Government itself sponsors, plus the regulators — ESIC, EPFO, IRDAI, SEBI. Ordinary commercial insurance sits entirely outside.

Entry 34: the ₹2,000 payment gateway limb

Exempt: services by an acquiring bank to any person in relation to settlement of an amount upto two thousand rupees in a single transaction transacted through a credit card, debit card, charge card or other payment card service.

Three things to note. The ceiling is per single transaction, not per day or per customer. It is the acquiring bank's service that is exempt — the merchant discount rate on a small-ticket card payment. And the exemption is not available to the issuing bank's charges to the cardholder.

Related entries in the same group:

• Entry 34A — services supplied by the Central Government, State Government or Union territory to their undertakings or PSUs by way of guaranteeing loans;
• Entry 34B — services by an acquiring bank and a payment system provider to any person in relation to settlement of an amount up to ₹2,000 in a single transaction transacted through credit card, debit card, charge card or other payment card service — the entry as expanded;
• Entry 34C — services by way of advancement of religious, spiritual or yoga — see the charitable entries.

Entries 39 and 40: rural banking intermediaries

Entry 39 exempts services by the following persons in the respective capacities:

• (a) a business facilitator or a business correspondent to a banking company with respect to accounts in its rural area branch;
• (b) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in (a); and
• (c) a business facilitator or a business correspondent to an insurance company in a rural area.

"Rural area" is defined for these purposes by reference to the branch's location, and the exemption is branch-specific: the same business correspondent's work for an urban branch of the same bank is taxable.

Entry 40 exempts services by way of transmission or distribution of electricity by an electricity transmission or distribution utility — grouped here as a network utility, and one of the most litigated exemptions in the notification because of the ancillary charges question.

Where the disputes are

Not on interest itself — that is settled — but on three recurring lines:

Bill discounting. "Discount" is expressly within entry 27(a), so the discount on a bill is exempt; a separate collection charge on the same bill is not.

Penal interest. Whether a charge labelled "penal interest" on a default is interest within para 2(zk) or a charge for tolerating an act turns on the contract, not the label.

Ancillary electricity charges. Meter rent, application fees and testing charges beside the transmission or distribution service in entry 40 have been the subject of repeated clarification and litigation.

Key takeaways

• Entry 27(a) exempts only the consideration represented by interest or discount — every fee, charge and penalty on the same loan is taxable.
• Para 2(zk) excludes from "interest" any service fee or other charge, and any charge on an unutilised credit facility.
• Credit card interest is expressly excluded and is taxable.
• Entry 27(b) exempts only the inter-bank and authorised dealer foreign exchange market; customer transactions are valued under rule 32(2).
• Insurance exemptions are scheme-specific — entries 28, 29, 29A and 35 name each scheme; commercial insurance is taxable.
• ESIC, EPFO, IRDAI and SEBI services are exempt under entries 30 to 33 and 36A.
• Entry 34 exempts the acquiring bank's settlement of card transactions up to ₹2,000 each.
• Entries 39 and 40 exempt business facilitators and correspondents for rural branches, and transmission or distribution of electricity.

Read next

• Renting of Residential Dwelling and the 90-Day Accommodation Exemption
• Section 17(3): What Counts as an Exempt Supply for Reversal
• Business Support and Construction Exemption Entries

Disclaimer: Positions stated as on 5 September 2026, based on entries 27 to 40 and para 2(zk) of Notification No. 12/2017-Central Tax (Rate) and rule 32(2) of the CGST Rules, 2017, as reproduced in the ICAI Handbook on Exempted Supplies under GST (April 2025).