Technical Analysis of Applicability of GST on Insurance Sector
- MULTI-INSURANCE In case the business entity pays for an insurance policy which has elements of both general insurance and life / health insurance, it should be able to bifurcate clearly which are the elements which relate to general insurance and which relate to life insurance in order to avail input tax credit. In the case of Fidelity Business Services India (P.) Ltd. vs Commissioner of Central Tax Bengaluru East [(2021) 127 taxmann.com 545 (Bangalore-CESTAT)] the appellant had availed general insurance services in relation to insurance for safeguarding assets, building and property and employees’ health and life. However, they had not been able to bifurcate insurance service availed on assets of the company and on lives of persons working in the said company.
Hence, in the absence of clear bifurcation and lack of documentary evidence, CENVAT credit on general insurance services was also to be denied. Therefore, it is recommended that one should not avail any multi-insurance where the elements of life insurance and general insurance cannot be bifurcated.
- ACCIDENTAL INSURANCE AND WORKMAN’S COMPENSATION POLICY : An accidental insurance covers accidental bodily injury directly resulting in death or disablement to insured person. When this insurance is taken for personal purpose of the employees, one should be cautious before availing ITC as the same has an element of life insurance also, unless the policy does not cover life. However, where accidental insurance is taken for accident taking place at work premises, input tax credit on the same should be allowed as it is taken purely for mitigating the cost which the business entity would have to bear for accidents at workplace. A workmen’s compensation insurance policy is meant for commercial establishments. It provides legal liability coverage to an employer and also assists employees in times of financial emergencies. The policy compensates employees if they are injured at the workplace. Work-related fatalities and illnesses are also covered under this policy. The said policy is generally taken to cover the employer’s liability. Even though it covers the life of an employee, the nature of such insurance is not personal.
In the case of M/s Checkmate Industrial Guards Pvt Ltd vs Commissioner of Central Goods & Service Tax, Noida [ST Appeal No. 71259 of 2018] [2020- TIOL-1323-CESTAT-ALL], the appellants were in the business of providing ‘Security Services’ and ‘Detective Agency Service’. The appellant had subscribed to the workmen’s compensation insurance policy in respect of employees with the intention of covering the appellant for payment of compensation to the employee if any mis-happening occurs with the employees when they are on duty. It was held by the CESTAT that the expenditure incurred was for running of the business and therefore service tax paid on the premium under workmen’s compensation insurance is admissible as CENVAT credit.
- KEYMAN INSURANCE POLICY : Keyman’s insurance policy is taken out by a business entity to compensate that business for financial losses that would arise from the death or extended incapacity of an important member of the business. Explanation 1 to section 10D of the Income Tax Act, 1961 defines keyman insurance policy as a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration. Even though the said compensation is in relation to life, the same is received by the employer. This is not to secure the personal life of the employee but for mitigating the losses incurred against the loss of a keyman for the business entity. Hence, input tax credit should be allowed on the same. Reliance can also be placed on the judgement of M/s Om Logistics Ltd vs. Commissioner (Appeals) Central Goods and Service Tax, Delhi, Central Tax/GST, Delhi [2020-TIOL16-CESTAT-DEL] which allowed CENVAT credit on keyman insurance services under the erstwhile laws.
- INWARD AND OUTWARD SUPPLY OF THE SAME NATURE : Where an insurance company receives services from a re-insurance company, it will be eligible to claim input tax credit on such services. The said inference was drawn in the case of M/s Shriram General Insurance Company Ltd vs Commissioner of Central Goods and Service Tax [2021- TIOL-505-CESTAT-DEL] and further applied in the case of M/s Oriental Insurance Company Ltd. vs Commissioner, Large Taxpayer Unit [2021-TIOL72-CESTAT-DEL] [ST Appeal No. 51676 of 2016]. This is because one can state that inward and outward supplies are of the same nature i.e., that of receipt and provision of the services of insurance.
