GST Council to Discuss Input Tax Credit On Group Health, Life Insurance For Employees
GST Council may extend input tax credit benefits to employer-purchased group health and life insurance, potentially lowering costs and boosting employee coverage adoption.
GST Council is set to deliberate on allowing input tax credit for group health and life insurance premiums paid by employers for employees.
NEW DELHI – GST Council: The Goods and Services Tax (GST) Council is likely to consider allowing businesses to claim input tax credit (ITC) on group health and life insurance policies purchased for employees, in a move that could reduce the cost of employer-sponsored insurance, according to people familiar with the matter.
The proposal is expected to come up at the GST Council’s meeting on September 12. The Council’s law committee had earlier examined the issue and proposed lifting the existing restrictions on ITC for group health and life insurance policies provided by employers.
At present, employer-sponsored group health and life insurance policies continue to attract GST at 18%, even after the government exempted individual health and life insurance policies from GST in September 2025. The GST paid by employers on employee insurance is generally not available as an input tax credit, except in specified circumstances.
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The distinction has created an additional cost for companies that provide insurance as an employee benefit. Under the existing rules, ITC can generally be claimed where providing insurance is mandatory under law, including in certain cases involving employees working in hazardous industries.
If approved, the proposed change would allow eligible businesses to offset the GST paid on group insurance premiums against their output GST liability. This could lower the effective cost of providing health and life insurance coverage to employees, although the precise scope and conditions for claiming the credit will depend on the Council’s final decision.
The issue has gained importance following last year’s GST overhaul of insurance premiums. From September 22, 2025, individual life and health insurance policies were moved to the exempt category, effectively removing the 18% GST previously charged on such policies. However, employer-sponsored group health and group life policies were kept outside the exemption and continue to attract 18% GST. The Ministry of Finance has also clarified that employer-sponsored group health and life insurance will continue to be taxed at the 18% rate.
For companies, the combination of an 18% GST levy and restrictions on ITC means the tax becomes part of the cost of providing the benefit. For example, a company paying Rs 1 crore in premium for a group health policy would currently pay another Rs 18 lakh in GST, subject to the applicable tax treatment. If ITC is permitted, that GST could potentially be offset against the company’s output tax liability.
The proposed relief could therefore have implications for the corporate insurance market, particularly group health insurance, which is widely used by employers as part of their employee benefits packages.
The move would also create a clearer distinction between the treatment of individual and group insurance. While individual policies are now GST-exempt, group policies remain taxable, with the proposed ITC mechanism potentially providing employers with a way to recover the tax cost.
The GST Council is also expected to consider a broader set of measures aimed at easing compliance and unlocking blocked input tax credits at its September 12 meeting.
However, the proposal is yet to be approved by the Council. Any change to the current ITC framework will depend on the recommendations adopted at the meeting and subsequent changes to the GST rules.
