The GST Council is expected to consider a proposal to unblock Input Tax Credit (ITC) for employee insurance policies, outdoor catering, free samples, and goods destroyed or written off.
The proposal also leaves the decision on unblocking ITC for motor vehicles, including their leasing, renting, or hiring, to the Council’s discretion.
Tax Relief
“The Law Committee of the GST Council has recommended five amendments to section 17(5) of the CGST Act to unblock ITC on various goods and services to help businesses. These are expected to be considered by the Council in its meeting on October 7,” a senior official told businessline. One key change is omitting life and health insurance and outdoor catering from the section blocking ITC.
He explained that life and health insurance, particularly group insurance policies provided by companies to their employees, can be considered business expenses. “Denial of credit on these items creates an inconsistency, as life and health insurance have been removed from the tax net. This leaves primarily group insurance as taxable, which is prima facie a business expense,” he said, adding that this makes a case for unblocking of ITC.
He said outdoor catering services could constitute genuine business expenses incurred for business events, conferences and staff functions integral to business operations. As of now, ITC is already available “where it is obligatory for an employer to provide the same to its employees under any law”. Canteen services are presently a baseline infrastructure that is becoming a standard operational necessity, especially for large enterprises. Also, no ITC is permissible if outward catering is used for personal or non-business purposes. Considering these nuances, the Law Committee favoured unblocking of ITC in case of outdoor catering, the official said.
On free samples, he said, “It is part of normal business operations in sectors such as pharmaceuticals and FMCG to distribute free samples for market development and customer acquisition. Denial of ITC will add to the cost of business”. Thus, the Law Committee recommended that blocking ITC for such supplies may be done away with. Similarly, ITC may not be denied where goods are destroyed or written off due to expiry of their shelf life, as required for compliance under a law.
No Consensus
However, the official added that there was no consensus in the Law Committee on allowing ICT on motor vehicles and leasing/renting/hiring of motor vehicles. “Some members in the Law Committee felt that such relief could be misused, as vehicles for personal consumption could be diverted through this route, which would have major revenue implications,” he said. There was also a suggestion to provide relief for vehicles alone. The matter was left for the Council to decide.
