The Central Board of Indirect Taxes and Customs (CBIC) has issued a set of FAQs post GST rejig to offer clarification on the taxation of various goods and services when the restructured tax system becomes effective on September 22.
Some of these clarifications pertain to insurance companies since the GST Council exempted premium on individual health and life insurance policies from GST in its September 3 meeting. Previously, these came under the 18 per cent tax slab.
On being asked which inputs the companies can claim input tax credit (ITC) on, the taxation body clarified that insurance companies will not be able to claim input tax credit on GST paid on inputs like commissions and brokerages for individual health and life insurance policies.
"Out of these input services, reinsurance services will be exempted. Input Tax Credit of other inputs or input services is to be reversed because the output services will be exempted," the CBIC said.
Additionally, the body said services of individual health and life insurance business provided by insurers to the insured, except for group insurance, are included within the ambit of the exemption.
Also Read: ‘Liberalisation’ of the Insurance Amendment Bill on the cards: FM
"When these services are provided to an individual, or to an individual with his/her family, the same will be exempted," it added.
As per the FAQ, businesses which are in the 5 per cent slab without the ITC will not be able to claim credit on the taxes paid on input of such goods and services.
For example, a hotel buying toiletries or amenities used entirely for rooms charged at 5 per cent without ITC cannot avail ITC on those purchases. Such service providers who are in the 5 per cent without ITC category do not have the option to charge 18 per cent with ITC on these services, the CBIC pointed out.
"Credit of input tax charged on goods or services used exclusively in supplying such services shall not be taken by the service provider," the CBIC said.
So, hotels supplying units of accommodation which have value less than or equal to ₹7,500 per unit per day, shall not be able to avail ITC on such units as the GST rate for such supplies is 5 per cent without ITC. Similarly, the 5 per cent without ITC rate on beauty and physical well-being services is mandatory.
However, in cases where goods or services are used partly for supplies taxable at 5 per cent without ITC, and partly for other taxable supplies (say, charged at 18 per cent with ITC), the credit has to be apportioned.
"Credit of input tax charged on goods or services used partly for supplying such services and partly for supplying other taxable supplies shall be reversed by the service provider as if the supply leviable to 5 per cent without ITC is an exempt supply. Consequently, proportionate ITC shall be required to be reversed by the service provider," the CBIC said.
Rajat Mohan, Senior Partner at AMRG & Associates said the rationale behind such a move is to simplify compliance and reduce tax incidence for end consumers.
"But, the trade-off is denial of ITC to service providers. Thus, while customers enjoy lower tax rates, suppliers bear the embedded cost of GST in their input chain, requiring careful apportionment and reversal mechanisms," he said.
In other GST-rejig related news, since the CBIC said re-labelling of medicines does not require recalling or re-labelling existing stock as long as revised price lists are provided to dealers/retailers, there have been voices raised by other sectors such as FMCG and companies in the retail sector on how reduced prices can be passed on to the end customer on the stock already available with retailers and dealers without changing the MRP on the products.
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