GST input tax credit on group health, life insurance may boost coverage

Allowing input tax credit (ITC) on GST for group health and life insurance policies could lower employee coverage costs, narrow the tax disparity with individual plans and expand insurance, experts say. The proposal is among several key financial sector reforms likely to be considered at the GST Council meeting in New Delhi on Thursday.

 

While goods and services tax on group insurance policies will continue, allowing employers to claim ITC will make the tax cost recoverable and eventually benefit employees through lower insurance costs or higher coverage, according to experts.

 

The government in September 2025 reduced the 18 per cent GST on individual life and health insurance policies to zero per cent. ITC was also withdrawn for individual policies. However, the 18 per cent GST on group insurance policies was retained. According to the proposal, GST levied on employer-employee insurance policies will continue, but employers will be allowed to claim credit for the GST paid instead of treating it as a cost.

 

“Tax is charged on that cover, and until now the business could not recover it. That tax will now be recoverable as credit. Almost every organised employer provides cover for its workforce, so the cost of providing it comes down,” said a person aware of the proposal.

 

“It has been a long-pending demand from companies to have input tax credit on group health policies. Permitting input tax credit will benefit the beneficiaries. Now, it is a level playing field in terms of taxation for retail and group health insurance business. As it reduces cost, it is likely to boost coverage of employees,” an insurance executive said.

 

The group health insurance premium stood at over Rs 68,000 crore in FY26. Similarly, the life insurance industry collected around Rs 2.75 trillion in premiums from group insurance. However, group term insurance includes not only policies provided through employers and other organisations but also credit life insurance policies issued by banks, non-banking finance companies and microfinance institutions.

 

Narendra Bharindwal, president of the Insurance Brokers Association of India, said: “Allowing ITC on group health insurance is a welcome move because it will address the anomaly between retail and corporate health insurance from a GST perspective. While retail health insurance became exempt from GST, group health insurance continued to attract 18 per cent GST, and corporates were not allowed to claim ITC on the premium.”

 

“By permitting the corporate buyer to claim ITC, the government would effectively bring group health and retail health insurance beneficiaries on a level playing field from a GST perspective. The benefit can flow through to employees by reducing the effective cost of corporate group health insurance,” he said.