The GST Council said credit is now available on health and life insurance taken for employees. Businesses can set off the 18% GST paid against their tax liability. G Srinivasan said this is a significant step toward making employee healthcare more affordable. This move helps smaller companies provide better insurance coverage.
“Credit will now be available on health and life insurance taken for employees,” according to the GST Council’s outcome note. This allows businesses to set off the 18% GST paid on eligible employee insurance policies against their tax liability instead of treating it as a cost.
The move addresses a long-standing demand from corporates and the insurance industry, which had argued that GST paid on employee group health insurance was locked as blocked credit.
G Srinivasan, MD and CEO, Galaxy Health Insurance, said allowing input tax credit on health and life insurance purchased by employers for their employees is a significant step toward making employee healthcare more affordable. He added that the ability to avail ITC on the GST component will reduce the effective cost of providing insurance benefits for employers and create greater flexibility in designing comprehensive employee benefit programmes including wellness. “For employees, this could translate into wider coverage, higher protection and potentially more inclusive benefits, depending on how employers deploy the resulting savings.”
The relief could make group insurance more attractive for smaller companies, particularly MSMEs with limited margins, which may have factored the tax cost into deciding the extent of employee coverage. “The 18% 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,” said Sajja Praveen Chowdary, Director – Policybazaar for Business.
However, Amit Baid, Head of Tax at BTG Advaya, said the real test would be whether the credit extends to the entire premium. “Most group policies insure employees’ families too, and if the amendment restricts credit to employee coverage alone, we could soon see a fresh wave of disputes over premium apportionment.”
The employer-employee group health insurance segment garnered more than ₹68,000 crore in premiums in FY26. At the existing 18% GST rate, the tax component on the entire premium would be about ₹12,240 crore. However, the actual benefit to companies will depend on the amount of credit eligible for claim and its utilisation. Life insurance collected over ₹2.75 lakh crore in premium collections from group insurance, which includes employer-employee as wells as group credit life policies taken by banks and NBFCs to cover their outstanding loans.
Krishnamoorthy Rao, MD&CEO, Generali Central Insurance said Group health has traditionally operated in a challenging pricing environment, with intense competition often putting pressure on premiums and margins for insurers. “For insurers, the opportunity is to translate this improved economics into sustainable growth rather than simply competing away the benefit through lower premiums.”
Last September, the government exempted individual life and health insurance policies from GST, including term insurance, endowment plans, family floater policies and senior citizen health covers, which were earlier subject to 18% GST. The 18% GST will continue to apply to group insurance policies.