The Ministry of Finance, when providing additional clarification in respect of Special Cash Package equivalent in lieu of Leave Travel Concession (LTC) Fare for the Central Government Employees for the block 2018-21, had issued an Office Memorandum on November 25, 2020, that contained the mention of insurance coverage premium as one of the services eligible beneath this LTC Scheme.
Against the query – if payment of premium of currently current insurance coverage policies be covered beneath this scheme – the OM stated, “The special cash package envisages just the purchase of goods and services with GST of 12 per cent and above made during the period between 12.10.2020 and 31.03.2021. Payment of premium of existing insurance policies does not fall under this category. However, payment of premium for insurance policies purchased during the period between 12.10.2020 and 31.03.2021 is eligible for reimbursement under the scheme.”
Subsequently, the scheme was permitted for public sector as effectively as public sector organisations exactly where LTC added benefits are currently in spot.
However, in most private sector organisations, LTC is portion of the CTC, so no added dollars is provided as LTC reimbursement. As a outcome, rather of paying dollars beneath the LTC Scheme, such organisations will deduct the eligible LTC Scheme quantity from the taxable portion of salary of the personnel availing the Scheme as tax-no cost reimbursement.
As premium on insurance coverage policies attracts 18 per cent GST, premium paid on new life insurance coverage policies (issued involving October 12, 2020 and March 31, 2021) is permitted as eligible services beneath the LTC Scheme. However, as the GST is not charged on the complete premium (e.g. charged on 10 per cent of premium for single-premium policies resulting in 1.8 per cent productive GST on the complete premium quantity), the personnel as effectively as the accounts departments of many organisations are acquiring confused.
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Confusion prevails on endowment plans as effectively, as 18 per cent GST is charged on 25 per cent of premium quantity for the initially year and on 12.5 per cent of the premium quantity in the subsequent years resulting in 4.5 per cent productive GST in the initially year and 2.25 per cent productive GST in the subsequent years on the complete premium quantity.
“In accordance with the clarifications dated November 25, 2020 issued by the Ministry of Finance, it is clarified that only premiums paid in respect of such policies which are purchased between 12.10.2020 to 31.03.2021 are eligible for benefit under the LTC Scheme. Further, it is necessary for the goods purchased or services availed i.e. premium in the given case to be subjected to a GST rate of 12 per cent or more in case for the same to be eligible for benefit under the scheme. The Office Memorandum dated October 12, 2020 while putting forth the eligible criteria has used “purchase of such items/ availing of such services which carry GST rate of not less than 12 per cent from GST registered vendors/ service providers has been used’,” stated Dr. Suresh Surana, founder, RSM India.
“Prima facie it seems that the intent is to cover life insurance policies on which 12 per cent or more GST is attracted and it can be inferred that even if the effective rate of GST is less than 12 per cent (single-premium policies / endowment plans, etc), the benefit of LTC may not be denied,” he added.
However, as the added benefits might be availed by the personnel in type of deduction from the taxable revenue described in Form 16 and can not be claimed separately when filing the Income Tax Return (ITR), they have to rely on the respective accounts departments to permit the added benefits.
With the confusion prevailing more than the productive GST price on life insurance coverage premium, accounts departments are refusing to permit the life insurance coverage premium as eligible advantage beneath the LTC Scheme.
“As there is a lot of ambiguity on this, a clarification in this aspect may be expected from the government,” stated Dr. Surana.
With much less than a month left to avail the scheme and deposit the vouchers/bills ahead of March 31, 2021, the Central Board of Direct Taxes (CBDT) has tiny time to permit the eligible beneficiaries to avail the added benefits on life insurance coverage premium.