The law committee under the GST Council last week proposed changes to existing provisions to allow companies to claim ITC on such expenses when they are incurred for employees, according to people aware of the matter.
The proposals are part of the committee’s ease of doing business review and are expected to be considered at the next GST Council meeting. “There are many expenditures which are not eligible for the input tax credit and the law committee has proposed to allow ITC on such expenditures like group insurance and vehicle purchase for office use,” a senior official told ET.
The proposals will require the GST Council’s approval before any changes are made to the law.
If approved, businesses across sectors would be able to claim credit on the GST paid on such purchases, reducing the cost of these investments. The GST Council is expected to meet in the coming weeks to discuss pending indirect tax reforms.
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Official vehicle use
Under the current GST regime, ITC on motor vehicles is restricted. Businesses generally cannot claim credit on vehicles purchased for company use unless they fall within specified categories, including manufacturers, dealers, driving schools and certain passenger transport businesses.The restriction was introduced to prevent credit claims on vehicles that may also be used for personal purposes.
As a result, companies buying cars for executives, sales teams or official travel cannot usually offset the GST paid on those vehicles against their tax liability.
The restriction also extends to related expenditure, including vehicle insurance, repairs and maintenance.
Industry has argued that passenger vehicles are essential for sectors such as consulting, pharmaceuticals, financial services and manufacturing, where employees travel extensively for business.
The proposed relaxation would change the tax treatment of vehicles purchased for business operations. The law committee has also proposed clarifying what constitutes business operations to remove ambiguity in interpretation.
Group health and life insurance
The committee has also proposed allowing ITC on group insurance policies purchased by employers for employees. At present, ITC is available only in limited cases, such as where insurance is mandatory under law or where the recipient supplies the same category of service.
For most employers offering insurance as part of employee welfare or compensation, the GST paid becomes an unrecoverable business cost.
The proposed change would allow companies to claim credit on the GST paid on employee group insurance policies. Industry has long argued that employee health insurance has become an essential business expense rather than a discretionary benefit, particularly since the pandemic.