GST ITC allowed on health, life insurance

On October 8, 2026, the GST Council meeting recommended a positive change for employees who receive health and life insurance coverage through their employers. The council allowed input tax credit (ITC) on such insurance taken by employers. This means that businesses can claim the GST paid on these insurance premiums as input tax credit and use it to offset their output tax liability.

Previously, Section 17(5) of the CGST Act, 2017 restricted the ability of businesses to claim ITC for group insurance policies and other similar expenses. This resulted in higher costs for employers, making group insurance less affordable for businesses, particularly small and medium-sized enterprises (MSMEs). With the new amendment, the restriction has been removed, allowing employers to pass on the benefits to their employees.

The reduced cost for employers can lead to better benefits and potentially higher insurance coverage for employees. Experts suggest that employers may use the saved funds to expand their businesses or improve employee benefits. This change also helps reduce the burden on lower-income households, as they may benefit from wider insurance coverage offered by their employers.

However, for employees to benefit from this change, their employer must have sufficient GST output tax liability to utilize the ITC available on the group health and life insurance policies. The revised rules will help create a more tax-neutral environment for insurance coverage, ultimately benefiting both employers and employees.