I am aged 79, and have been running a small-scale industrial unit in Kalamassery for the past 45 years. I purchased an insurance policy, (LIC’s) Jeevan Shanti, for my wife and the manager of my company, Radha Vijayan, in recognition of her 45 years of services. I paid an amount of ₹15,01,473 plus CGST of ₹13,513.50 and SGST of ₹13,513.50, totalling ₹15,28,500. The policy being a perquisite or gift given to an employee, I considered that the input tax credit (ITC) could be claimed by my company. To my surprise, on an enquiry, an LIC senior divisional manager advised me in writing that “ITC will not be available for goods or services used for personal use. In this case, the policy is on the life of a person.” This is despite using the GST number in the LIC receipt. Can I claim the ITC?

Pookot Vijayan

Normally, input tax credit is available on GST paid on the expenditures incurred for the purpose of business. However, a few expenses are considered ineligible for ITC even when they are spent for business. The premium paid for life insurance taken for employees is one of them. As per Section 17(5)(b)(i) of the CGST Act, 2017, ITC credit is ineligible on life insurance expense. However, a proviso to the section says that the credit of taxes paid on premium payment of life insurance can be claimed as ITC only in the following cases: a) When it is an obligation for an employer to provide life insurance to its employees under any law for the time being in force; or b) When life insurance is an outward supply of the business.

In the instant case, ITC credit is not eligible as neither is the individual obliged to take life insurance for his employee nor is providing life insurance an outward supply to the concerned.

The writer is Managing Partner, Brahmayya & Co

Related Topics
comment COMMENT NOW