GST Council allows employers to claim ITC on group insurance coverage

The GST Council's decision to allow input tax credit on employee group health and life insurance is expected to reduce coverage costs for employers, particularly MSMEs

The Goods and Services Tax Council (GST) Council on Thursday said that Input Tax Credit (ITC) will now be available on health and life insurance taken for employers who provide such coverage to their employees. 

 

The decision is expected to ease the cost of coverage for employers particularly for Micro, Small, and Medium Enterprises (MSMEs) and make group health insurance more economically viable, according to insurance experts.

 

Krishnamoorthy Rao, managing director (MD) & chief executive officer (CEO), Generali Central Insurance, said: “The move to allow employers to avail input tax credit on GST paid towards employee group health insurance marks a significant step towards making group health coverage more economically viable and can translate into deeper penetration of employer-sponsored health insurance in the country. Group health has traditionally operated in a challenging pricing environment, with intense competition often putting pressure on premiums and margins.”

 

 

“The availability of ITC could ease the effective cost of coverage for employers, creating greater headroom to sustain adequate pricing while also enabling companies to enhance benefits, coverage limits and employee eligibility. For insurers, the opportunity is to translate this improved economics into sustainable growth rather than simply competing away the benefit through lower premiums,” he added.

 

According to General Insurance Council’s data for FY26, premiums accrued from group health insurance was over ₹68,000 crore. 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 finance companies (NBFCs) and microfinance institutions.

 

Sajja Praveen Chowdary, Director & CEO, Policybazaar for Business said, “The officially approved Input Tax Credit (ITC) on health and life insurance policies by employers is a welcome move that can significantly ease the cost burden for corporates, particularly MSMEs.” He added that the smaller business will be able to reduce their dependence on government-funded health care and social security schemes in the medium to long-term due to the wider insurance coverage.

 

“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. The savings could either be channelled towards business growth and expansion or used to enhance employee benefits,” Chowdary added.

 

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.