1. The guidelines issued by the Ministry of Home Affairs (MHA) Government of India vide order no. 40-3/2020-DM-I(A) dated 15.04.2020 amongst other things specifies that all industrial and commercial establishments, work places, offices, etc. shall be required to obtain medical insurance for the workers mandatorily before starting their operations after the lockdown (refer para 21 read with sr. no. 5 of Annexure-II to the given order). IRDAI in pursuant to the said order vide circular dated 16.04.2020 has advised insurers to offer comprehensive health insurance policies to individuals or groups to enable the above-mentioned organizations to comply with the government’s directions. The regulator has also advised the insurers to devise these comprehensive health insurance products with simple wordings and conditions and at an affordable cost for the stated organizations.
2. Now the following aspects are yet to be clarified concerning the above-mentioned guidelines:
a. Whether medical insurance for the workers already covered under the ESI Act, 1948 (i.e. those who earn less than Rs. 21,000/-) and thereby covered for various medical benefits (including in-patient treatment) is also to be obtained separately over and above the ESI coverage for compliance with the MHA guidelines? It would appear that the MHA guidelines intend to cast a wider net and mandate the provision of group/individual medical insurance also to employees not covered under the ESI Act, 1948 and therefore a separate cover for those already under the ESI may not be required.
b. Will the mandatory medical cover be offered only till the pandemic is over? Guidelines are silent on whether the mandatory medical insurance will have to be provided till a certain period and if yes, what could be that period? Clarity on the period will enable insurance companies to come out with products to limit the cost of insurance.
c. Whether a group policy is mandatory or even individual policy can be taken? Guidelines only provide that the medical insurance for all the workers would be mandatory. Therefore it would be optional for the employer to obtain group medical insurance cover (without individual underwriting) or even individual medical insurance cover considering the costs and the benefits.
d. The cost of such mandated insurance also needs to be considered and capped to avoid putting an unreasonable burden on struggling sectors. Therefore clarity on the same is also required.
e. The issuance of group cover requires time to access the risks and determine the premium cost. Therefore clarity is required on whether the mandatory cover is to be compulsorily obtained before starting the operations or the same can also be obtained within a reasonable time.
f. It may also be noted that the revised guidelines issued by MHA on 01.05.2020 does not include the clause on obtaining the mandatory cover as provided under the earlier guidelines dated 15.04.2020. Therefore clarity is also required in this aspect.
3. Readers would have thus guessed that many aspects related to the guidelines on mandatory medical insurance are to be cleared by MHA in days to come.
4. Having discussed the above aspect let us consider whether a registered person who obtains such medical insurance cover will be able to avail the input tax credit (“ITC”) of the GST amount charged on the insurance premium
5. Now Sec. 16(1) of the CGST Act, 2017 allows ITC for all goods and services which are used in the course or furtherance of business. Sec. 17(5)(b)(i) read with the proviso provides that ITC for health insurance shall not be eligible unless the same is obligatory for an employer to provide the same to its employees under any law for the time being in force. The term “health insurance” has not been defined in the GST laws. However the term “health insurance business” has been defined u/s 2(6C) of the Insurance Act, 1938 to include contracts that provide for sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient travel cover and personal accident cover. Therefore it would imply that medical insurance would be part of the health insurance and hence ITC would be permitted only if obtaining such medical insurance is mandatory.
6. In the given situation the guidelines of MHA issued under the powers conferred u/s 10(2)(l) of the Disaster Management Act, 2005 would be considered as law. Therefore the registered persons purchasing such insurance cover for their employees can be said to be doing it as a part of an obligation under the law and hence ITC of the same would be available.
7. Before we end it may also be noted that ITC to the extent of any recovery made from the employees towards such medical insurance coverage cost would not be admissible as the shared cost will be considered as a pass-through not paid and borne by the registered person. Employment contracts must however be amended to reflect the said understanding. Also ITC for the individual policy taken for the family members of the employees would not be available as obtaining such coverage of family members is not mandatory under law.