At its next meeting, the GST Council may bring about three major changes that could benefit the country’s businesses in a big way. These changes could allow businesses to claim input tax credit (ITC)-linked relief on vehicles purchased in a company’s name, on group insurance cover bought for employees and even if a supplier defaults on GST payment. Headed by the Union Finance Minister, the GST Council is the constitutional body that makes recommendations to central and state governments on all major GST-related issues, including tax rates, procedures and related guidelines.
Sources said the GST Law Committee is considering three key proposals as part of the broader Ease of Doing Business reforms. If approved, these moves could reduce compliance costs and provide significant tax relief to companies, said people in the know of the matter. The GST Law Committee examines GST law, rules and related legal issues. It also recommends amendments or clarifications to resolve interpretational difficulties.
- ITC may be allowed on vehicles bought in company’s name
Sources told Zee Business that authorities may permit companies to allow ITC on vehicles purchased in their name.
Currently, companies cannot claim ITC on PVs bought in the company’s name unless they fall under specific exceptions such as vehicle dealers, passenger transport businesses or driving schools — broadly businesses engaged in the automobile space. In practice, a company purchasing a vehicle for office use, employee travel or general business movement usually does not get ITC benefits under GST rules.
Any change in this practice will mark a shift from the present blocked-ITC rule for most company cars to a more liberal regime.
- ITC may be allowed on group insurance bought by employers for their employees
Sources said ITC benefits may be allowed on group health and life insurance policies purchased by businesses for their employees.
This could bring a significant relief to businesses given that companies cannot claim ITC on group health and life insurance premiums bought for employees.
Currently, employers usually bear the GST cost as part of the insurance expense rather than offsetting it through ITC.
- ITC benefit may be available even if supplier fails to deposit GST
The GST Council is also expected to consider a proposal that will protect businesses’ ITC even if a supplier that they have purchased inputs from fails to deposit the GST.
In this system, a buyer’s ITC may be safeguarded once the supplier’s GSTR-2B is generated and the buyer submits the required banking or payment documents.
Currently, businesses can lose ITC-related benefits despite having paid the GST amount to the supplier if the supplier defaults on depositing the tax with the government.
GST Decoded: New to ITC? Learn how it works
Under the indirect tax regime introduced in India in 2016, Input Tax Credit is a key mechanism that prevents “tax on tax.” What it does essentially is it enables businesses buying goods or services for their operations to offset these payments against the GST they collect on their own sales (known as output). Simply put, an apt use of ITC allows businesses to collect extra GST and then claim it through returns.
Using ITC, businesses are only required to meet their net tax obligations (output tax minus eligible ITC), since the process taxes only the value addition.
Businesses can claim GST charged on purchases used for business purposes, known as inputs. These could be raw materials, services and even capital goods. However, not every item being used in the business are eligible under ITC, such as any asset being used for personal use.
How is ITC claimed? What is the role of GSTR‑2B return?
ITC is reflected in the buyer’s GSTR‑2B and then claimed through GSTR‑3B — the summary return businesses are required to file each month. For ITC reconciliation, buyers match invoices against suppliers’ GSTR‑1 uploads, where any mismatch can delay claims. An important caveat is that ITC is available only if the supplier has filed returns and paid tax. Failure by the supplier to file its return in time triggers disputes.
All regular GST-registered taxpayers are generally required to file GSTR-3B, including businesses with nil returns. However, a few GST categories are treated differently, including businesses opting for the Composition Scheme, input service distributors, non-resident suppliers of Online Information and Database Access or Retrieval (OIDAR) services, and non-resident taxable individuals.
