The GST Council is expected to consider a proposal on October 7, 2026, allowing employers to claim input tax credit (ITC) on premiums paid for employee insurance cover.
Under the proposal, businesses providing group health or life insurance to their staff could offset the 18% GST levied on such policies against their output tax liability, a change that could reduce the overall cost of workforce coverage.
Currently, individuals buying life or health policies for themselves or their families are exempt from GST. However, when a company buys the same cover for its employees, the policy attracts 18% GST, and businesses cannot claim ITC on it under Section 17(5)(b) of the Central GST Act.
Reports citing government sources said the Group of Ministers (GoM) on health and life insurance has endorsed the proposal, and that NDTV, PTI and other outlets have confirmed the item is on the Council’s October 7 agenda. The same agenda is expected to include ITC relief on motor vehicles taken on lease, rent or hire, along with wider compliance reforms.
“This will make insurance cheaper for every employer to provide,” sources told PTI, adding that nearly every organised employer provides cover for its workforce, so bringing down the cost should assist the spread of cover and the insurance industry itself.
According to IRDAI data, 3.73 million group health insurance covers were sold in FY24, largely by corporates, alongside 45,659 group life insurance policies. The scale of corporate-backed group insurance means any ITC relief would materially reduce workforce benefit costs across industries.
The decision follows the Centre’s September 2025 move to reduce GST on individual life and health insurance to zero, which left group insurance used by employers still carrying the full 18% tax burden. If approved, the ITC change is expected to encourage wider adoption of employer-sponsored health and life cover, particularly among mid-sized firms that have historically struggled to absorb the tax cost.
