“The GST Council is likely to allow employers to claim input tax credit (ITC) on insurance covers purchased for their employees at its October 8 meeting, government sources said.
At present, businesses cannot claim ITC on the tax paid on health and life insurance policies purchased for employees. Under the existing rules, employer-sponsored group health and group life insurance policies attract the standard 18 per cent GST rate, while ITC on such insurance is generally blocked.
“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,” an official said.
While individual life and health insurance policies are exempt from GST, the 18 per cent levy on group products has resulted in a cost arbitrage between the premium paid and the sum assured, tax experts noted.
“The proposal will result in reducing the effective purchase price of insurance and provide an incentive to corporations to opt for higher coverage products for the same amount of total spend, thereby boosting coverage for health insurance and widening the access to better health facilities for a large part of the workforce,” an tax expert said.”
“Medicines, pharma manufacturing to get relief
Another proposal under consideration is to exempt imported drugs, medicines and specialised foods purchased for the treatment of seven rare diseases from GST.
“Treatment for these conditions is among the heaviest costs a family can face, often running into lakhs every month, and the exemption reaches the patient directly,” an official said. However, the names of the seven rare diseases were not disclosed.
Indian pharmaceutical units that execute “work on goods” for a foreign client will also be treated as providing exports under the proposed changes. This means such transactions with foreign clients will attract nil GST, compared with 18 per cent currently.
“This sector covers clinical trials, testing and analysis carried out for a sponsor abroad. It also covers contract manufacturing for a foreign company,” another official explained.
Tax paid on inputs attracting 18 per cent GST will also be eligible for refunds under the input tax credit route.
“Ninety percent of such refund claims will now be released automatically on a risk check, which returns that money to the business far sooner,” the person added.
Moneycontrol reported earlier in the day that the GST Council may change the classification of exports under GST laws. Under the proposed changes, all supplies delivered to foreign clients, including those routed through an Indian company’s overseas branch, will qualify as zero-rated exports, meaning exporters will not have to pay tax on such transactions.
Under GST laws, exports of goods and services are classified as zero-rated supplies in principle.
At present, many Indian firms bill their overseas clients or receive payments through their own foreign branches.
“The definition of an export required that the supplier and the recipient not be establishments of the same person, and a supply routed through an exporter’s own branch fell within that description. That condition will be removed,” an official said.”
