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

Allowing employers to claim ITC on GST paid on group health and life insurance could lower effective costs, address a tax disparity and encourage wider employee coverage

Allowing input tax credit (ITC) on Goods and Services Tax (GST) paid on group health and life insurance policies could reduce the effective cost of employee coverage, address the tax disparity between individual and employer-provided insurance and boost insurance penetration. The move is among the key proposals concerning the banking, insurance and financial services sectors likely to be considered at the GST Council meeting.

 

While GST on group insurance policies will continue to be levied, allowing employers to claim ITC would make the tax cost recoverable and could eventually benefit employees through lower insurance costs or higher coverage, experts said.

 

In September 2025, the government 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 ITC was also withdrawn for individual policies.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. Under the proposal, GST on employer-employee insurance policies would continue to be levied, but employers would 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.

 

The move has been a long-standing demand of companies and the insurance industry, as GST paid on employee group health insurance currently falls under blocked credit and becomes a cost for companies.

 

“It has been a long-pending demand from companies to have input tax credit on the group health policies. By permitting input tax credit, it 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 ₹68,000 crore in FY26. Similarly, the life insurance industry collected around ₹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 financial companies (NBFCs) and microfinance institutions.

 

Narendra Bharindwal, president, Insurance Brokers Association of India (IBAI), said, “Allowing input tax credit (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 added.