The finance ministry on Tuesday issued clarifications on input tax credit rules under the revised GST framework effective September 22, tightening provisions for insurers, hotels and select service providers.
According to a fresh set of FAQs from the Central Board of Indirect Taxes and Customs (CBIC), insurance companies will not be eligible for input tax credit (ITC) following the complete exemption of GST on premiums for individual health and life policies.
Earlier taxed at 18 per cent, the exemption removes GST liability but also disallows credits on input services such as commissions, brokerage and other operating costs.
“At present, insurers are availing input tax credit on many inputs and input services such as commissions, brokerage and reinsurance. Out of these input services, reinsurance services will be exempted.
“Input tax credit of other inputs or input services is to be reversed because the output services will be exempted,” the CBIC said.
“The move puts the industry in a bind as insurers will either absorb higher operating costs or partially pass them on through premium hikes, even as the government has directed companies to ensure that policyholders get the full benefit of the GST relief.
Hotels face a similar restriction. Units charging up to ₹7,500 per day per room will attract 5 per cent GST without input tax credit, while for higher rates there is input tax credit.
The same rule applies to beauty and wellness services, where the government has barred dual-rate options to ensure customers benefit directly from lower levies.
“The government wants end consumers to gain the maximum advantage, hence dual-rate structures have not been allowed,” said Rahul Shekhar, partner, indirect tax, Nangia Andersen LLP.
On pharmaceuticals, the CBIC reiterated National Pharmaceutical Pricing Authority’s guidelines stating that medicine MRPs must reflect revised GST rates, though existing stocks issued before September 22 need not be recalled or re-labelled if manufacturer/ marketing companies are able to ensure price compliance at the retailer level.