The 57th GST Council meeting on October 8, 2026 has recommended allowing input tax credit (ITC) on health and life insurance taken by employers who provide such coverage to their employees. According to the latest press release, the Council has 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. This decision is expected to ease the cost of coverage for employers, particularly MSMEs, and make group health insurance more economically viable. The move comes as a significant policy shift that could substantially impact the insurance landscape for corporate employers. Finance Minister Nirmala Sitharaman announced that GST Council will decide on rate changes only once a year, following the conclusion of the 57th GST Council meeting, with an officers' committee examining ITC issues to ensure honest taxpayers don't face difficulties in claiming credit.
The GST Council's recommendation could reduce businesses' insurance costs significantly, with employers potentially saving up to ₹1.8 lakh on annual premiums. Consider a company paying ₹10 lakh annually for group health insurance premiums, which attracts 18% GST of ₹1.8 lakh, taking the total bill to ₹11.8 lakh. If the entire GST amount becomes eligible for ITC and the company can utilise the credit, the effective cost could fall to ₹10 lakh, representing a saving of ₹1.8 lakh. According to Business Standard, group health insurance premiums reached over ₹68,000 crore in FY26 and the life insurance industry collected around ₹2.75 trillion in premiums from group insurance during the same period. However, the actual benefit will depend on eligibility and the employer's ability to use the credit against its GST liability, as it is not an automatic cash refund of the premium paid.
The GST Council's recommendation does not guarantee higher insurance coverage for employees, as employers can decide how to use the savings. Companies could use the financial headroom to increase the sum insured, extend health coverage to dependants, add benefits or improve access to preventive healthcare. Alternatively, they could retain the savings to manage operating expenses or support business expansion. As per Minoo Mantri, executive vice-president at Anand Rathi Share and Stock Brokers, the change could help employers manage insurance expenditure more efficiently and reconsider whether their existing employee coverage is adequate. SR Patnaik from Cyril Amarchand Mangaldas noted that the decision to share savings with employees would be a commercial one, influenced by competition for talent and existing employment terms. In labour-intensive sectors, employers may consider improving benefits to attract and retain workers, while employees in unionised workplaces could negotiate for a share of the savings.
Sajja Praveen Chowdary, director & CEO – Policybazaar for Business, described the move as a welcome development that can significantly ease the cost burden for corporates, particularly MSMEs. The 18 per cent 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. Ankit Jain from Ved Jain and Associates said the proposed change could lower the entry barrier for smaller businesses considering employer-funded health insurance. For a business with a large workforce, even a modest saving per employee could add up across its annual insurance bill. MSMEs could benefit from the lower effective cost because they often have to balance employee benefits against tight operating budgets and cash-flow requirements. The savings could be channelled towards business growth and expansion or used to enhance employee benefits, as noted by Chowdary.
The Council's recommendation is not self-executing and requires relevant amendments to the CGST Act and rules to be notified before businesses can claim the credit. Employers would need to maintain proper tax invoices and comply with applicable ITC conditions, with policies procured in the employer's name and invoices reflecting the GST paid. Businesses would need to maintain documentation and verify that their premiums qualify for ITC, with smaller employers requiring time to understand and comply with the applicable requirements. Any improvement is unlikely to be immediate, as employers will first have to wait for the legal changes to take effect, assess their eligibility and determine the credit they can use. Employees could realistically see changes around the next insurance renewal cycle after the relevant provisions are notified, subject to their employer deciding to pass on the savings.
