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GST Input Tax Credit Can be Availed on Medical Insurance

Ministry of Home Affairs (MHA) in wake of COVID 19 has made medical insurance mandatory for the workers of offices, workplaces, factories, and establishments. This decision of the Government has brought great relief for the organization as now organizations can take the benefit of input tax credit paid on medical insurance premiums.

In this article, we are analyzing the eligibility of input tax credit paid on medical insurance prior to and after this amendment. For this let’s first discuss Section 17 (5) of the CGST Act, 2017.

Section 17(5) and Section 16 of CGST Act, 2017:

When goods or services are used or intended to be used in furtherance of business by a registered person then the registered person is eligible to avail input tax credit against such purchase as per Section 16 of Central Goods and Service Tax Act, 2017 (CGST Act, 2017). However, Sub-Section 5 of Section 17 of the CGST Act, 2017 blocks the amount of input tax credit of certain goods or services that can’t be availed by a registered taxpayer even though these goods or services are used or intended to be used for the furtherance of business. Clause b of said section blocks the input tax credit of the following service: iii. rent-a-cab, life insurance, and health insurance except where––

(A) The Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force

(B) Such inward supply of goods or services or both of a particular category is used by a registered person for making outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply This section clearly states that input tax credit can’t be availed on life insurance and health insurance until they are obligatory in nature. Taxpayers are required to ascertain from different acts if Government has notified such service mandatory in nature for them.

GST Input Tax Credit implication prior to this order:

Insurance was mandatory for factory workers and specified establishments employing at least 10 persons. Covered Establishments are required to provide benefits envisaged under the Employees State Insurance Act, 1948 (ESI Act) to all employees who draw 'wages' up to INR 21,000 per month. In such a scenario, the input tax credit can be availed as the Government has made mandatory insurance for workers. But in the case of offices, establishment, etc there is no such obligatory in any law by the employer to take insurance of its employees. Therefore, in such cases, offices, establishments, etc were not able to avail input tax credit on the premium paid on health insurance for its employees.

GST implication after this order:

MHA has issued Order No. 40-3/2020-DM-I (A) dated 15th April 2020. In Clause No. 5 of Annexure-II of the order, MHA has made medical insurance mandatory for workers. Further MHA has issued clarification via ref: IRDAI/HLT/CIR/MISC/093/04/2020 dated 16th April 2020. In the said reference the Government has stipulated all industrial and commercial establishments, workplaces, offices, etc. shall make arrangements for the implementation of Standard Operating Procedure (SOP) before starting their functioning. As per Clause No. 5 of Annexure-II for the purpose of social distancing for offices, workplaces, factories, and establishments Government has made mandatory medical insurance for the workers. Now, the Government has made medical insurance mandatory for the workers of offices, workplaces, factories, and establishments, and Section 17 (5) (b) of CGST Act, 2017 clearly states that the taxpayer is eligible to avail input tax credit if Government has made any service obligatory for an employer. This implies that taxpayers can now avail of GST input tax credit on the premium paid on medical insurance as per Sub Section 5 of Section 17 of the CGST Act, 2017.

Conclusion:

Now the offices, workplaces, factories, and establishments can avail of the input tax credit on the premium paid for medical insurance for their workers. Disclaimer: The contents of this article are solely for information and knowledge and do not constitute any professional advice or recommendation. The author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.

 

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