The GST Council is set to consider a proposal that could allow employers to claim input tax credit (ITC) on GST paid for life and health insurance policies provided to employees. The move could reduce the tax cost associated with employer-sponsored insurance coverage and affect how businesses account for such benefits.
Under the current GST framework, individuals buying life or health insurance policies for themselves or their families are exempt from GST. However, insurance purchased by businesses for employees is subject to GST, and employers have so far been unable to claim ITC on the tax paid on such policies.
Council To Consider Proposal
The GST Council is expected to take up the proposal at its meeting on 7 October. If approved, businesses could claim credit for the GST paid on insurance premiums for employee coverage, changing the existing tax treatment of group insurance policies.
At present, group life and health insurance policies purchased by employers attract GST at 18 per cent. The inability to claim ITC means the tax becomes part of the overall cost incurred by businesses for providing the coverage.
Impact On Employer Costs
The proposed change could lower the effective cost of providing insurance benefits to employees by allowing eligible businesses to offset the GST paid against their tax liability.
Employer-sponsored insurance is widely used across the organised workforce, particularly as part of employee benefits and compensation packages. The tax treatment therefore has a direct bearing on the cost businesses incur when providing such coverage.
The proposal could also lead companies to reassess the cost structure of their existing group insurance arrangements if the credit becomes available.
Possible Effect On Coverage
A lower tax burden on employer-provided insurance could influence the cost of maintaining group health and life cover. Businesses may have greater flexibility in allocating budgets towards employee insurance, depending on the final rules and eligibility conditions.
The change could also have implications for the wider insurance market if lower costs encourage more employers to provide or expand coverage for their workforce.
Decision Hinges On Final Rules
The proposal is yet to be approved, and its impact will depend on the final decision of the GST Council and the conditions attached to any ITC provision.
For employers, the key issue will be whether the proposed credit applies broadly to employee insurance policies and how it will interact with existing GST rules governing input tax credit.
If approved, the measure would mark a change in the tax treatment of insurance purchased by businesses for employees, potentially reducing the cost of employer-sponsored coverage.
Source from: https://www.bwpeople.in/article/employers-may-get-gst-credit-on-employee-insurance-premiums-626882
