GST 2.0 gets bigger: Employee insurance ITC, easier compliance on Council agenda

The GST Council is likely to consider a package of process reforms on October 7, including allowing employers to claim input tax credit on GST paid for employee insurance and measures aimed at simplifying registration, protecting genuine input tax credit and reducing low-value tax disputes.

One of the key proposals before the GST Council is to allow businesses to claim input tax credit on premiums paid for life and health insurance coverage provided to employees.

Currently, businesses buying group insurance policies for employees are charged GST but cannot claim input tax credit on the premium. An 18 per cent GST is currently levied on such group insurance policies.

The proposed change could reduce the effective cost of providing insurance cover to employees if approved by the Council.

GST on individual purchases of life or health insurance has separately been exempted when policies are bought by individuals for themselves or their families.

Relief proposed for small e-commerce sellers

Another proposal aims to make it easier for small sellers operating through e-commerce platforms to obtain GST registrations in multiple states.

Under the proposed system, an e-commerce platform's warehouse could be treated as the seller's registered place of business in states where the seller does not have its own premises.

The seller would first need a genuine business presence in one state, where physical verification and Aadhaar authentication would be completed. Registrations in other states could then potentially be obtained with the consent of the e-commerce platform without additional tax-officer intervention.

The proposal could benefit around 9.5 lakh small sellers by allowing them to access markets across the country without setting up separate physical offices in every state where their goods are stored.

Genuine buyers may get protection on ITC

The Council may also consider protecting the input tax credit of genuine buyers who hold valid invoices even when an upstream supplier fails to pay the tax.

Under the proposed approach, recovery action would be directed towards the defaulting supplier rather than the buyer who has complied with the relevant requirements.

The measure is aimed at addressing a recurring source of GST disputes and uncertainty for businesses purchasing goods or services from smaller or newer suppliers.

GST notices below Rs 10,000 may be restricted

To reduce low-value litigation, the Council is likely to consider a proposal to prevent GST notices where the tax demand is below Rs 10,000.

According to the proposal, such cases account for around 20 per cent of GST cases by number but involve only a small share of the overall tax amount.

The proposed threshold could also cover pending cases at the adjudication or appeal stages.

For demands above Rs 10,000, tax officers may first be required to inform taxpayers and give them an opportunity to respond before issuing a formal notice.

Simpler registration and returns

The proposed GST process reforms also seek to redesign registration applications so taxpayers receive guidance while completing them.

The system could display only relevant sections, provide a customised list of documents and allow information from an existing registration in another state to be carried forward.

Businesses seeking registrations in several states could also potentially complete the process together.

Other proposals include a unified documentation process for GST registration, simpler annual returns and a quarterly tax-payment option for MSMEs that supply only to consumers.

Proposed changes to logistics checks

Another reform would introduce intelligence-led checks for goods in transit.

Under the proposal, vehicles carrying goods could generally be stopped only with prior authorisation from a senior officer and by the state of origin.

Exceptions could apply where documents are missing or tax is payable by the buyer.

The aim is to reduce repeated stoppages of goods vehicles at state borders, potentially lowering transit times and freight costs.

Other proposals before the Council

The GST Council may also consider a single 5 per cent GST rate without input tax credit for goods delivered through e-commerce platforms.

Other proposals reportedly include clarifying the export status of services supplied through an Indian company's overseas branch and withdrawing the IGST exemption on imports of gold, silver and platinum by specified banks and nominated agencies.

The proposed package represents a broader attempt to simplify GST compliance and reduce disputes between taxpayers and the tax administration.

For businesses, the most significant measures could be the proposed employee insurance ITC, protection of genuine buyers' input tax credit, easier multi-state registration and fewer low-value disputes.

However, these remain proposals until considered and approved by the GST Council. The final provisions and implementation framework could change following the Council's deliberations.