GST Not to Be Levied on Premium Recovered via Mediclaim

Shubham Chauhan

05 Nov, 2019

As per Maharashtra Authority for Advance Ruling (AAR): GST will not be levied on the premium recovered from employees salary for their parents Mediclaim

A Mumbai-based firm reached out AAR raising the issue of GST levied on employees salary for parents Mediclaim

The Maharashtra Authority for Advance Ruling (AAR) has ruled that the premium recovered from employees’ salary for parents Mediclaim would not be liable to GST. The decision is expected to benefit the salaried class.

AAR’s ruling on GST levied on premium recovered via Mediclaim

This decision was ruled out after a Mumbai based firm reached out AAR^[1] with regards to the GST collected on premium recovered from employees’ salaries. After analyzing the arguments provided by the applicant, AAR said that “they are not providing any service related to health insurance to their employees and hence, there is no supply of services in the instant case”. There is no exchange of service between the employer and the employee. Hence no GST would be levied on the premium recovered via Mediclaim. Therefore, the ruling will benefit the salaried class the most as the money recovered from their salary would not be accountable for GST charges.

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A Mumbai-based firm introduced parental insurance (optional) for employees. The structure of the insurance scheme was so that initially, the firm will pay the full premium amount inclusive of taxes to the insurance firm. The insurance company will then issue the premium receipt in the name of the applicant. Later 50% of the premium amount would be recovered from the salary of the employee.

The firm did not have any idea that 50% of the premium recovered from employees’ salaries will be liable to GST. Therefore, the firm decided to reach out to AAR and resolve the problem.

AAR ruled that the activity of recovering 50% of the insurance premium is not an activity that would benefit the business. This activity doesn’t include the supply of service between employee and the employer, hence should be exempted from GST.

Conclusion

This decision ruled by AAR came out as a relief for the employees of the firm. From now on the premium recovered from employees’ salary for parents Mediclaim, would be exempted from GST. AAR said that any revenue generated is not accountable to GST until the revenue gained is used for business-related activities. However, it will be interesting to analyze whether this exemption of GST will be restricted to only insurance premiums or apply to other recoveries made from employees as well.