Input tax credit relief for companies on staff cars, insurance likely
According to sources aware of the matter, last week the legal committee under the GST Council recommended changes to the existing provisions that allow companies to claim ITC for such expenses incurred on employees.
The proposals are part of the committee’s business review facilitation and are expected to be considered at the next GST Council meeting. “There are many expenses that are not eligible for input tax credit and the legal committee has proposed allowing ITC for expenses like group insurance and purchase of vehicles for office use,” a senior official told ET.
The proposals will require approval from the GST Council before any changes are made to the law.
If approved, businesses across different sectors will be able to claim credits on the GST paid on such purchases, which could reduce the cost of these investments. The GST Council is expected to meet in the coming weeks to discuss the pending indirect tax reforms.
Also read: GST law panel passes proposal to protect buyers’ input tax credit from supplier defaults
Official vehicle use
Under the current GST regime, ITC on motor vehicles is restricted. Businesses generally cannot claim credits on vehicles purchased for company use unless they fall into certain categories, including manufacturers, dealers, driving schools, and certain ride-hailing businesses. The restriction was introduced to prevent loan requests for vehicles that can also be used for personal purposes.
As a result, companies that purchase cars for executives, sales teams or official travel generally cannot offset the GST paid on these vehicles against their tax liabilities.
The restriction also covers related expenses, including vehicle insurance, repairs and maintenance.
The industry has argued that passenger vehicles are essential for industries such as consulting, pharmaceuticals, financial services and manufacturing where employees travel extensively for business purposes.
The proposed relaxation will change the tax treatment on vehicles purchased for commercial activities. The legal committee also recommended clarifying what constitutes business operations to eliminate ambiguity in interpretation.
Group health and life insurance
The committee also recommended allowing ITC on group insurance policies purchased by employers for employees. Currently, ITC is only available in limited situations, such as when insurance is required by law or the buyer provides the same category of services.
For most employers who offer insurance as part of employee welfare or compensation, the GST paid becomes an irrecoverable business cost.
The proposed change would allow companies to claim credits on GST paid on employee group insurance policies. The industry has long argued, especially since the pandemic, that employee health insurance has become an essential business expense rather than a discretionary benefit.
