Medical health insurance premiums to be taxed now, says AAR

New Delhi: AAR specifies the amount of GST that must be paid on employee medical health insurance premiums. Companies, including statutory entities, would be liable for goods and services tax on medical health insurance premiums paid by their employees.

Even municipal and other statutory entities that receive tax exemption on different services they provide must pay GST on medical health insurance premiums for employees, according to the Telangana Authority of Advance Ruling (AAR).

The Telangana AAR decision came in response to a request by M/s. Hyderabad Metropolitan Water Supply and Sewerage Board, which wanted to know if it was obliged to pay GST on medical insurance premiums paid to offer health insurance to employees, pensioners, and their family members.

The application also requested an earlier judgment on the taxability of the vehicle insurance policy purchased to cover the Board's vehicles. The AAR determined that services provided by a municipality are eligible for GST exemption under Article 243W of the Indian Constitution. These services are directly related to the functions stated in the 12th schedule for such organisations.

The AAR found that the insurance services purchased by the applicant had no relationship to the activities performed by them under Article 243W, and hence these services do not qualify for exemption. The AAR determined that premiums paid for vehicle insurance are excluded if the vehicle is used to carry out statutory responsibilities allocated to municipalities.

Such vehicles will not have a direct relationship to the tasks undertaken under Article 243W if they are utilised to transport employees, board members, or other people. As a result, the AAR concluded that it will not be eligible for exemption.