Can We Claim GST Input on Insurance

Can We Claim GST Input on Insurance

A crucial aspect under GST in India for businesses relates to the provision for claiming input tax credit. Some specific questions business entrepreneurs are likely to seek clarity about involve whether one is allowed to take GST as input on an insurance premium. Thus, an elaborate understanding regarding such a point may be explored the topic “Can We Claim GST Input on Insurance”, below based on provisions under the CGST Act, rules, notifications, and circulars.

Understanding GST Input Tax Credit (ITC)

Input Tax Credit (ITC) enables firms to set off the tax that they have incurred on inputs from their output tax liability. Such a mechanism helps prevent cascading of tax. However, only some of the expenses qualify as ITCs. Insurance premium remains one of those expenses, subject to a good deal of controversy.

Or say, not all inputs are eligible for ITC, and insurance premiums often fall into a grey area. Lets understand “Can We Claim GST Input on Insurance?”

Relevant Provisions of the CGST Act

CGST Act Section 17

Section 17 of the CGST Act outlines the circumstances under which ITC can be claimed. Specifically, it states:

- Section 17(1): ITC is available on goods and services used or intended to be used in the course or furtherance of business.

- Section 17(5)(Block Credit): This section lists the specific categories of goods and services for which ITC is not available. Notably, it includes insurance services, except in certain cases.

CGST Rules

The CGST Rules further elaborate on the provisions of the Act. Rule 37 deals with the reversal of ITC in cases where the goods or services are used for non-business purposes. This is particularly relevant for insurance premiums, as the nature of the insurance policy can determine its eligibility for ITC.

Notifications and Circulars

The CBEC (Central Board of Excise and Customs) has issued various notifications and circulars to clarify the applicability of ITC on insurance. For instance:

- “Notification No. 13/2017”: This notification provides clarity on the applicability of ITC on various services, including insurance.

- “Circular No. 123/42/2019-GST”: This circular addresses the eligibility of ITC on insurance services, emphasizing that ITC can be claimed only if the insurance is directly related to the business operations.

Updates on Insurance

"The GST on health insurance has been a hot topic, especially during the 48th GST Council meeting. When health and life insurance premiums were initially included in the 18% GST slab, it sparked widespread protests, as premiums previously carried a 15% service tax before GST. 

In 55th GST council stated, “GST will be exempted on contributions made by general insurance companies from third-party motor vehicle premiums collected by them towards the Motor Vehicle Accident Fund, established under Section 164B of the Motor Vehicles Act, 1988. This fund provides compensation and cashless treatment to road accident victims, including hit-and-run cases.”

Scenarios and Examples

Scenario 1: ITC on Insurance for Business Assets

Consider a manufacturing company that takes out an insurance policy for its machinery. Since the insurance is directly related to the business operations, the company can claim ITC on the GST paid on the insurance premium.

Example: 

- Insurance Premium: ₹20,000

- GST Rate: 18%

- GST Paid”: ₹3,600

In this case, the company can claim an ITC of ₹3,600, reducing its overall tax liability.

Scenario 2: ITC on Personal Insurance

Conversely, if a business owner takes out a personal health insurance policy, the GST paid on this premium is not eligible for ITC, as it is not used in the course of business.

Example:

- Insurance Premium: ₹2,000

- GST Rate: 18%

- GST Paid”: ₹180

Here, the business owner cannot claim the ₹180 as ITC since the insurance is for personal use.

Scenario 3: ITC on GST Paid for Life Insurance

As an individual policyholder, you cannot claim the GST input tax credit on life insurance premiums. However, if you are an employer offering life insurance as part of an employee benefits package—such as gratuity or leave encashment—you can claim the GST paid on these plans as ITC.

ITC is generally not allowed for health and life insurance premiums unless It is mandated by law for the employer to provide such insurance to employees (e.g., ESI).

Example:  A company cannot claim ITC on health insurance for its employees unless mandated by law or directly related to providing a taxable service.

Scenario 4:General Insurance

ITC is allowed if the insurance pertains to motor vehicles used for business purposes, provided the vehicles are not used for personal purposes or transportation of goods outside taxable supplies.

Example: A logistics company purchasing third-party insurance for its fleet of trucks can claim ITC as it directly relates to business operations.

Key Takeaways to avail ITC on Insurance

ITC on insurance premiums is generally not allowed unless it meets specific criteria under Section 17(5) (Block Credit)of the CGST Act.

ITC is claimable for insurance directly tied to business operations, statutory mandates, or taxable outward supplies and Maintain proper documentation, including invoices and agreements before taking Input tax credit in your GSTR 3B.

Always refer to the latest notifications and circulars to stay updated on GST provisions for insurance.

Conclusion

In conclusion, the GST input claim is subject to the nature of the insurance policy. Business-related insurance premiums on business assets or operations can be claimed for ITC, while personal insurance policies cannot be claimed. The businesses must know the provisions of the CGST Act, relevant rules, and notifications to comply with the requirements and optimize their tax liabilities.

With awareness of the law and consultation with tax professionals, businesses can understand and take advantage of their input tax credits.

This article aims at clarifying eligibility on the aspect of GST input on insurance in order to give businesses the appropriate information regarding tax liabilities.

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