Rule 32 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.
A life insurance premium does two things at once. Part of it buys risk cover — a service. Part of it is invested on the policyholder's behalf — not a service at all.
Taxing the whole premium would tax the policyholder's own savings. Rule 32(4) separates them, in three different ways depending on the policy.
(a) Where the amount allocated for investment or savings is intimated to the policy holder at the time of supply, the value is the gross premium less that amount. (b) For single premium annuity policies not covered by (a), the value is 10% of the single premium. (c) In all other cases, 25% of the premium in the first year and 12.5% of the premium in subsequent years. The proviso disapplies the whole sub-rule where the entire premium is only towards risk cover — there, the full premium is the value.
The three methods
Method (a) — actual segregation. Available only where the investment or savings allocation is intimated to the policy holder at the time of supply of service. ULIPs and participating policies with a disclosed allocation fall here. The value is the residual: gross premium minus the allocated amount.
The condition is precise. The intimation must be to the policy holder and at the time of supply. An internal actuarial split not disclosed to the policyholder does not qualify.
Method (b) — single premium annuity. 10% of the single premium charged. Applies only to single premium annuity policies that do not fall under (a).
Method (c) — the default. 25% of the premium in the first year, and 12.5% in subsequent years. This is the endowment and money-back default where no allocation is intimated.
The proviso: pure risk cover
"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."
Where there is no investment or savings component at all — a pure term insurance policy — there is nothing to strip out. The whole premium is consideration for the service and is the value.
This is not a deemed valuation; it is the ordinary s.15 transaction value.
The proviso has taken on new importance under GST 2.0, which moved individual life and health insurance to the exempt category. Where a policy is exempt, valuation is academic for output tax — but it remains live for s.17(2) and Rule 42 apportionment, because exempt turnover has to be measured. And it stays live for group and corporate policies and for any product outside the exemption.
Worked examples
Endowment policy, ₹1,00,000 annual premium, no allocation intimated.
- Year 1: value ₹25,000.
- Year 2 onwards: value ₹12,500 each year.
ULIP, ₹1,00,000 premium, ₹85,000 allocated to the fund and intimated.
- Value ₹15,000 each year.
Single premium annuity, ₹20,00,000.
- Value ₹2,00,000.
Term policy, ₹15,000 premium, pure risk.
- Proviso applies. Value ₹15,000 — the full premium.
Note the pattern: the more a policy resembles savings, the smaller the taxable value; the more it resembles insurance, the larger.
What is outside Rule 32(4)
General insurance — motor, health, fire, marine, liability. Valued under s.15 on the full premium. Rule 32(4) is expressly about life insurance business.
Reinsurance. A separate supply between insurers, valued under s.15.
Agent commission. The insurance agent's supply to the insurer is a separate service. It is a notified reverse charge supply — the insurance company pays the tax on services supplied by an insurance agent. The agent does not charge GST on the commission.
Policy administration and fund management charges deducted from a ULIP are separate consideration for identifiable services and are generally taxed on their own.
Surrender and discontinuance charges need their own analysis under the Circular No. 178/10/2022-GST framework.
Practical notes
- The intimation condition for method (a) is a documentation requirement. The policy document or benefit illustration should show the allocation, delivered at inception.
- Method (c) distinguishes the first year from subsequent years by policy, not by financial year. A policy issued in October has its "first year" running to the following October.
- Rule 32 applies "at the option of the supplier". Valuation under s.15 on the full premium remains legally available, though no insurer would choose it.
- Rule 42 apportionment is where the value now matters most for insurers with a mix of exempt individual policies and taxable group business.
- Place of supply for insurance services is under s.12(13) of the IGST Act — the location of the recipient on the insurer's records for an unregistered recipient.
Key takeaways
- Method (a): gross premium less the intimated investment or savings allocation.
- Method (b): 10% of a single premium annuity.
- Method (c): 25% first year, 12.5% subsequent years.
- Proviso: pure risk cover is valued at the full premium under s.15.
- Rule 32(4) covers life insurance business only — general insurance is on s.15.
- Agent commission is a separate supply, taxed under reverse charge on the insurer.
Read next
- Rule 32(2): Valuing Foreign Exchange and Money Changing
- GST on Insurance Services
- ITC Reversal Under Rules 42 and 43
- Valuation Rules 27 to 35 Explained
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition). Verify the current exemption entries for insurance before applying them.