Higher GST ITC on Employee Staff Welfare Expenses

May, 15 2020
Indirect Taxation
By Team GST

The pandemic situation of COVID-19 has created an obligation for the Government to take necessary preventive steps. In this context Ministry of Home Affairs (MHA) has issued various orders and guidelines from time to time.

MHA in its order dated 15^th April 2020 has provided measures to be implemented in all offices, factories, and other establishments. In Annexure II of said order, MHA has issued a Standard Operating Procedure which is mandatory to be implemented in offices, factories, and other establishments for the safety of their employees.

Some of the important measures covered by the order are:

Medical insurance for the workers is to be made mandatory.
For workers coming from outside, a special transportation facility will be arranged without any dependency on the public transportation system.

Now, here the question arises whether GST ITC is admissible in providing above mentioned services to employees.

Section 17 (5) of the CGST Act, 2017 clearly disallows ITC on medical insurance, hiring of a motor vehicle, etc taken for employees provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. Therefore, as per MHA guidelines dated 15^th April 2020 ITC is admissible on medical insurance and on the hiring of vehicles.

Further, in our previous article dated 29^th April 2020, we have already discussed that ITC Is admissible. But on 1^st May 2020 MHA issued new guidelines in which MHA in its revised guidelines has not mentioned insurance or special transportation facility for employees.

Now, here the question arises whether GST ITC is still admissible.

We want to bring to the attention of our readers that these could be grey areas to be resolved but in view of the paper writers, once the order has been issued by the MHA and it is made mandatory in nature for anyone and failure in following these guidelines could invite penal action, it could very well be said that such services are covered in the clause “mandatory for an employer under the law”. Therefore ITC should be eligible. Various nature of staff welfare expense and applicability of these provisions could be tabulated as below:

Nature of expenses	ITC eligible	Eligible if mandatory under law	Whether covered in MHA
Food and beverages	No	Yes	No
The hiring of motor vehicles (more than 13 vehicles capacity vehicles)	Yes	NA (ITC is eligible in all cases)	Yes
Leasing, renting or hiring of motor vehicles	No	Yes	Yes, for the transportation of workers
Life insurance	No	Yes	No
Health Insurance	No	Yes	Yes

Conclusion:

MHA revised guidelines have created confusion in the mind of readers but in view of the paper writers, once the order has been issued by the MHA, it is made mandatory in nature. Therefore, we conclude that ITC is still admissible.

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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