QUESTION

ITC availability of GST paid on Insurance premium, in which circumstances ITC of GST paid on insurance premium will be avaialble.

ANSWER

FACTS OF THE CASE:

GST was paid on inward supply of insurance service. To check where the ITC would be available on the same.

LAW APPLICABLE:

1. In respect of general insurance on vehicles, vessels and aircraft, clause (ab) of section 17(5) CGST dictates that
"(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available-
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged-
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him"

2. In respect of life insurance and health insurance, clause (b) of section 17(5) is laid as follows
"(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or
aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance"

3. Second proviso to section 17(5)(b) specifies that
"Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force"

INTERPRETATION:

As per section 17(5) clause (ab), Insurance of those motor vehicle, vessel, aircraft the ITC of which is blocked u/s 17(5) clause (aa), shall be blocked.
In simpler words, if ITC of motor vehicle, vessel, aircraft is blocked then ITC on it's insurance shall also be blocked.
Section 17(5)(b) restricts ITC on life insurance and health insurance. However second proviso to 17(5)(b) allows ITC on life insurance and health insurance if there is a law in force that mandates provision of these insurances.

CONCLUSION:

1. ITC on general insurance of motor vehicle, vessel, aircraft shall be available if ITC on purchase of motor vehicle, vessel aircraft is available.
2. ITC on life and health insurance is available only if it's provision is mandated by any law. (Reply dt. 13/08/2021)