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Recovery Of Amount from Employees for Top-Up and Parental Insurance Premium Not Supply Under GST: GST AAR Maharashtra

Facts

  • The applicant was engaged in power generation, transmission and distribution to the customers.
  • The applicant has an arrangement with an insurance company for providing insurance to its employees.
  • The applicant had sought advanced ruling over the question if Recovery of Amount from Employees for Top-Up and Parental Insurance Premium would result in Supply Under GST.

Legal Precedence:
In M/s. POSCO India Pune Processing Center Private Limited (POSCO IPPC) vide Order NO.GST-ARA 36/2018- 19/B-110 Mumbai dated 07-09-2018,

ARA had ruled that, “they are not rendering any service of health insurance to their employees and hence, there is no supply of services in the instant case”

Points Put Forth by the Applicant

  • Applicant had contended that the applicant is not in the business of providing insurance coverage.
  • Secondly, providing of employee insurance or parental insurance cover is not a mandatory requirement (under any law) for the time being in force and therefore, non-providing employee insurance or parental insurance coverage would not affect its business by any means.
  • Therefore, as per the applicant, the activity of recovery of an amount towards insurance premium from the employees cannot be treated as an activity done in the course of business or for the furtherance of its business.
  • The applicant has also submitted that, they have not availed input tax credit of GST charged by the insurance company.

Judgement

The Maharashtra AAR ruled that the recovery of the Top Up Insurance/Parental Insurance Premium from employees either satisfies conditions of section 7 to be held as “supply of service” (in the instant case, insurance service) nor is it covered under the term “business” of section 2(17) of CGST ACT 2017. Hence not taxable.

With these rulings the industry is surely getting clarity that such recoveries should not be taxable as these are not supplies per se.

Hrithik Sachdeva, Audit Associate, SW

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