ITC of services mentioned under 17(5)(b) – blocked credit might be available to businesses amid Corona Virus

written by GST expert | May 24, 2020

As we know there is a pandemic going on and people are under the fear of going to work and therefore government is issuing circulars and various other instructions to businesses before starting their work which includes safety and security of employees.

Now, section 17(5)(b) tells about various ITC which are generally blocked and therefore we have use a term “blocked credit for this section. However, there are few exceptions where you can take this credit. Section 17(5)(b) is as follows:

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

..

…

(b) the following supply of goods or services or both

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre;

(iii) rent-a-cab, life insurance and health insurance except where

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and

(iv) travel benefits extended to employees on vacation such as leave or home travel concession”

From the above provision it is clear that one cannot claim credit of rent-a-cab service, life insurance or health insurance in the normal course of business. However there is one exception as well that one could take it if same is obligatory by government under any law for time being in force.

Now, government has also ordered the employers that if want to start their business they will have to take health insurance of their employees.

A recent Insurance Regulatory and Development Authority of India (IRDAI) circular states: “Reference is invited to Order No. 40-3/2020-DM-I (A) dated 15th April 2020 issued as part of the Consolidated Revised Guidelines by Ministry of Home Affairs (MHA), GOI. As per the said order, inter alia; the following are stipulated:

All industrial and commercial establishments, workplaces, offices etc. shall put in place arrangements for the implementation of Standard Operating Procedure (SOP) before starting their functioning. As per clause no. 5 of Annexure – II of the said SOP for social distancing for offices, workplace, factories and establishments, medical insurance for the workers to be made mandatory, as per the circular.

So if a business employing 200-300 or say 2000-3000 employees, the amount of health insurance would be huge and in turn amount of GST on same would also be huge and therefore now using the exception to this section one could claim ITC of GST on such insurance policy, provided you keep the official order issued by the government. Similarly there were orders that employer should arrange pick and drop facility for employees so that they don’t have to use public transport and thus now employer could even take its credit.

 

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