Now GST input tax credit to employers on group insurance; this can mean more life and health insurance coverage for employees; Know how it helps

The 57th GST Council meeting which happened on October 8, 2026 has recommended a good news for employees who have employer provided health and insurance. The GST council has allowed input tax credit on health and life insurance taken for employees by their employers.

According to a press release, the GST council has recommended to rationalise blocked ITC by an amendment in section 17(5) of the CGST Act, 2017.

“The Council recommended amendment in section 17(5) of the CGST Act, 2017 to remove the restrictions on availment of ITC inter-alia on the supplies of outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, goods destroyed or written off on expiry of shelf life as required by law. This will reduce the cascading of taxes and ensure a smoother flow of ITC across the supply chain.”

Why does this matter for you?

On plain reading this news looks like a corporate news, but if you analyse the GST law and then read this news then you will understand what a good news is this for employees and other individuals who gets insurance coverage from their employers.

Firstly understand the basics. When a business like your employer buys something the employer pays GST and claims the GST amount as input tax credit and adjust it with their output GST tax liability. However, Section 17(5) said that the business (your employer) can’t do this for group insurance policies and other things as mentioned in the press release.

This means that even if the employer has paid GST on group health and life insurance policy, it technically could not have claimed ITC on the premiums thus raising its cost. So now this specific restriction is removed and this means the employer’s per employee cost is reduced.

Experts say that now that employer’s per employee is reduced they can pass on the benefits to their employees to retain them and may even increase their insurance coverage. It is up to the employers about how they will use this ITC benefit given to them by the GST Council.

L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan said to ET Wealth Online: Earlier the law said that input tax credit pertaining to the group insurance policies are restricted under Section 17 of the CGST Act unless the recipient is engaged in further supply of general/ health insurance services or if it is a statutory obligation. Due to the same, the employers/ companies are currently paying tax at the rate of 18% while receiving the group insurance services for their employees. However, ITC qua the same is restricted for the said employers/companies.

The rationale provided by companies was that when such insurance expense is permitted as business expense under the Income Tax law, same treatment should be adopted for GST and ITC should be permitted.

Further, with individual medical insurance being exempt from GST from September 2025 onwards, continuing to tax group insurance services at the rate of 18% and not allowing ITC was distorting the credit chain. Non-allowability of ITC resulted in tax cost in the hands of the companies.

Narayanan says that with today's GST Council recommendation about unblocking of ITC in relation to group health insurance services, allowing the companies to avail ITC qua the tax paid. Thereby, allowing input tax credit to flow seamlessly through the supply chain without leakage or distortion.

How this may help employees?

Sajja Praveen Chowdary, Director & CEO – Policybazaar for Business said in a statement that this means that the GST council has officially approved Input Tax Credit (ITC) on health and life insurance policies by employers and by doing this it can significantly ease the cost burden for corporates, particularly MSMEs.

Here’s how it helps you:

Employees can get more benefits since the employer’s cost of group insurance is reduced

Chowdary says that the 18% GST input tax credit on employee health and life insurance can make group insurance more affordable for smaller businesses, which often rely on such benefits to attract and retain talent.

In simple terms this means that if your employer has purchased group health or life insurance for your coverage and paid 18% GST on the insurance premiums, then your employer can claim this 18% GST as input tax credit and potentially offset their output GST tax liability thereby reducing their cost, which in turn actually helps you.

However, the benefit is useful only if the employer has sufficient GST output tax liability to utilise the ITC available on the group health and/or life insurance policy.

Lets’ say for example: Your employer pays Rs 1 lakh as insurance premium for group health insurance and paid Rs 18,000 (18% GST), so the total payment is Rs 1.18 lakh (1 lakh+18,000). Now suppose the output GST tax liability of your employer is Rs 2 lakh. So now the GST output tax liability can potentially become Rs 2 lakh-18,000= Rs 1,82,000.

Thus, with this ITC benefit, the group health insurance premium costs the employer Rs 1 lakh instead of Rs 1.18 lakh earlier. While Rs 18,000 might not sound like a very big amount, for a small- to medium-tier company this is a lot since this amount is for each premium per employee.

Employees could get more benefits, including wider insurance coverage

Chowdhary says that this savings by way of claiming ITC on the group insurance premium could either be channelled towards business growth and expansion or used to enhance employee benefits.

Chowdhary says: “Over the medium to long term, wider insurance coverage among the MSME workforce can also reduce the dependence of lower-income households on government-funded healthcare and social security schemes."

Manoj Mishra, Partner and Tax Controversary Management Leader, Grant Thornton Bharat said in a statement that allowing ITC would correct the past anomaly and create greater neutrality between individual and employer-provided insurance.

Mishra says: "From a business perspective, it would directly reduce the embedded tax cost of employee insurance and could encourage employers to expand coverage or enhance benefits. More importantly, it reinforces the fundamental GST principle of preventing tax cascading on genuine business inputs."

According to Mishra, this news would therefore not merely provide a cost benefit to employers, but complete the broader policy objective of making insurance more affordable and tax-neutral across different modes of coverage.