GST will not apply to premium recovered via Mediclaim

The Maharashtra Authority for Advance Ruling (AAR) has recently announced a ruling with regards to GST. According to this ruling, the medical insurance premium that is recovered from an employee’s salary concerning his/her parents’ Mediclaim would not be accountable for GST charges. This ruling will benefit the salaried class the most.

A Mumbai-based firm (applicant) had reached out to AAR with regards to GST applicability on the insurance premium, recovered from an employee. The applicant introduced parental insurance (optional) for employees wherein initially, the firm will pay the full premium amount inclusive of taxes to the insurance firm. Later, 50% of the premium amount will be recovered from the employee who has opted for the scheme.

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The applicant did not know whether GST charges will apply to the 50% of the premium amount the company recovered via an employee’s salary. After hearing the applicant’s arguments, AAR concluded that the activity of recovering 50% of the insurance premium could not be considered as an activity, which is done for business-related purposes or in the view of improving a business. AAR ruled that the said activity cannot be regarded as a supply of services between an employee and an employer.

A financial expert mentioned that this is a crucial ruling and any kind of revenue that is generated cannot be held accountable to GST unless and until the revenue is towards the furtherance of a company or business-related activities.

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