NEW DELHI: Businesses will now be able to claim input tax credit (ITC) on health and life insurance bought for employees, as the GST Council has recommended easing several restrictions on blocked credits. The changes are aimed at ensuring that taxes paid on genuine business expenses do not become an additional cost.
Under the current rules, a business cannot claim credit for GST paid on insurance cover provided to its employees. Now, only individuals buying health or life insurance for themselves and their families will continue to get no such credit, since they are consumers, and not businesses.
“Almost every organised employer provides cover for its workforce, so the cost of providing it comes down, which should assist the spread of cover as well as the insurance industry itself,” said a note from the Finance Ministry.
“Rationalising blocked credits, including extending credit eligibility for health and life insurance, telecom towers and other legitimate business inputs, will reduce tax cascading and bring the framework closer to its foundational design,” said Saurabh Agrawal, Partner, EY.
Sajja Praveen Chowdary, Director and CEO – Policybazaar for Business, said the 18 per cent input tax credit on employee health and life insurance can make group insurance more affordable for smaller businesses, which often rely on such benefits to attract and retain talent. The savings could either be channelled towards business growth and expansion or used to enhance employee benefits.
“Over the medium to long term, wider insurance coverage among the MSME workforce can also reduce the dependence of lower-income households on government-funded healthcare and social security schemes.,” he said.
ITC will also be allowed when businesses buy and resell certain services in the same line of business. This includes restaurant and catering services, hotel rooms costing up to ₹7,500 a night, and fitness services. The change will particularly help aggregators, tour operators and companies that procure such services before supplying them to customers or employees.
For example, a hotel room booked through an intermediary will no longer carry an additional tax cost at the intermediary stage because the intermediary will be able to claim a credit. This should put direct bookings and bookings through intermediaries on a more equal footing.
The credit restriction will also be removed for outdoor catering, beauty treatment, healthcare, cosmetic and plastic surgery and fitness services when these are bought for onward supply in the same line of business. This could benefit hotels and resorts that offer restaurants, spas and gyms as part of their operations.
Pharmaceutical companies are also expected to get relief. ITC will be available for free medicine samples given to doctors and on medicines and other goods that have to be destroyed after expiry under the law.
The council, however, referred the issue of ITC on motor vehicles to a committee of officers for further consideration.
Source: The Hindu Business Line
