.jpg)
GST UPDATE
????Desk of CA. Praveen Sharma Series- 497????Let's see ITC on Gratuity Insurance
Recently, the Government of Karnataka issued a notification dated 10-01-2024, invoking powers under section 4A(4) of the Payment of Gratuity Act 1972. This mandates companies registered in Karnataka to obtain gratuity insurance policies for their employees. The objective is to safeguard employee rights and ensure their financial security in the future. Similar regulations have been introduced in Telangana, Andhra Pradesh, and Kerala. In this article, we explore whether employers are entitled to claim Input Tax Credit (ITC) on GST paid for premium payments related to gratuity insurance services. But before delving into that, let's clarify some key aspects.
Understanding Gratuity:
Gratuity, though not defined under the CGST Act 2017 or the Payment of Gratuity Act 1972, can be elucidated through case law and its general meaning. It resembles a pension and serves as a retirement benefit for employees with long and continuous service. It's earned as a right, subject to fulfilling specific conditions, rather than being a discretionary payment at the employer's whim (Sudhir Chandra Sarkar v. Tata Iron and Steel Co. Ltd., AIR 1984 SC 1064).
Does Gratuity Insurance Include Life Insurance?
The Payment of Gratuity Act, 1972, stipulates gratuity payment for employees terminated after five continuous years of service. Termination can occur due to superannuation, retirement, resignation, death, or disablement. While gratuity payment occurs upon an employee's death, gratuity insurance cannot be deemed as life insurance, as it doesn't alter the computation or application of gratuity provisions.
HSN/SAC for Gratuity Insurance:
There's no specific classification for gratuity insurance. Hence, insurance service providers can use the HSN/SAC code "997139" for "Other Non-Life Insurance services" when invoicing for gratuity insurance.
Blocked Credit and GST Provisions:
Under Section 16 of the CGST Act, taxpayers can claim ITC on goods or services utilized for business purposes. However, Section 17(5)(b)(i) restricts ITC on life and health insurance unless mandated by law for employers to provide.
Judicial Precedent:
In the case of M/s Hydus Technologies India Pvt. Ltd. vs. CCE, C & ST, Hyderabad, the department initially rejected ITC refund on gratuity insurance, deeming it personal in nature. However, the appellant argued that group gratuity was a statutory obligation under the Payment of Gratuity Act. The court ruled in favor of the appellant, stating that benefits mandated by one legislation cannot be nullified by another.
In conclusion, while employers may be eligible for ITC on GST paid for gratuity insurance premiums, it's crucial to assess compliance with relevant laws and judicial precedents.
Read more: https://www.edatabook.com/c-detail/3888
Check Draft reply of GST Notice and Appeal format in our EdataBook
Stay tuned and Save my number for any query +91-9871530610.
CA. Praveen Sharma
0 Comments: