Summary: The 57th GST Council Meeting held on 8 October 2026 proposed removing the specific blocked-credit restrictions relating to health insurance and life insurance under Section 17(5)(b)(i) of the CGST Act, 2017. The proposed relaxation may benefit businesses purchasing employer-sponsored group medical insurance, group term life insurance and other qualifying insurance policies, particularly where coverage is voluntarily provided to employees. Under the existing law, such ITC is generally restricted unless a statutory exception applies, including insurance that an employer is legally required to provide. However, the proposed amendment would not automatically permit credit on every insurance arrangement. Individual life and health insurance policies exempt from GST do not generate corresponding ITC, while taxable group policies may qualify subject to the final amendment. The treatment of employees’ dependants, working directors, contract workers, retired employees, premium recoveries, Keyman insurance and business-protection policies will require examination of policy classification, business nexus and continuing statutory restrictions. Businesses making taxable and exempt supplies must also comply with the applicable credit-apportionment provisions, while banks and financial institutions may remain subject to Section 17(4). Organisations operating through multiple GST registrations must examine the mandatory Input Service Distributor framework under Section 20 and Rule 39 for distributing common input-service credit. Compliance with Section 16, invoice requirements and other provisions of Section 17 will remain necessary. As of 20 October 2026, the proposed relaxation had not become operative, and its precise scope and commencement will depend on the final enacted amendment.
Introduction
The 57th GST Council Meeting held on 8 October 2026 has proposed an important relaxation in the blocked-credit provisions under Section 17(5)(b)(i) of the CGST Act by recommending removal of the specific restrictions relating to health insurance and life insurance. The proposal is particularly relevant for businesses purchasing group medical insurance, group term life insurance and other employer-sponsored insurance policies for employees, since such credits are generally restricted under the existing law unless a specific statutory exception applies. However, the proposed relaxation should not be treated as an automatic entitlement in every insurance arrangement, because policy classification, GST applicability, business nexus, employee/dependant coverage, premium recoveries, Section 16 conditions, other restrictions under Section 17 and the mandatory ISD framework for multi-GSTIN organisations may still affect the final credit position. The existing law and the proposed amendment therefore need to be examined carefully before determining the actual ITC benefit available in each case.
In this article, I have discussed the practical applicability, ITC implications, calculation methodology, reporting and distribution requirements, and key precautions relating to health insurance and life insurance under Section 17(5)(b)(i) of the CGST Act. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.
The proposed amendment is particularly significant for companies purchasing group medical insurance and group term life insurance for employees.
Under the existing law, ITC on health insurance and life insurance is generally blocked, except in certain specified circumstances. The proposed relaxation may allow businesses to claim qualifying ITC even where the employer voluntarily provides insurance as an employee benefit.
Important: The recommendation has not yet become an operative amendment. Until the relevant amendment takes effect, the existing restrictions continue to apply.
1. Difference Between Individual Insurance and Group Insurance
The distinction between individual insurance and group insurance is particularly important because the GST treatment of insurance changed with effect from 22 September 2025.
Individual life and health insurance policies became exempt from GST, whereas employer-sponsored group insurance policies continue to attract 18% GST.
| Nature of insurance | GST rate | ITC implication |
|---|---|---|
| Individual health insurance | Exempt | No GST charged; therefore no ITC |
| Individual family-floater health policy | Exempt | No corresponding ITC |
| Individual term life insurance | Exempt | No corresponding ITC |
| Individual endowment or ULIP policy | Exempt | No corresponding ITC |
| Employer-sponsored group medical insurance | 18% | Proposed ITC relaxation is relevant |
| Group medical insurance covering employees and dependants | 18% | Potential benefit; coverage of dependants requires clarification |
| Employer-sponsored group term life insurance | 18% | Proposed ITC relaxation is relevant |
| Group credit-life insurance | 18% | Eligibility depends on the actual recipient, business use and remaining restrictions |
Important: The proposed amendment primarily benefits businesses paying GST on group insurance policies. It does not create an ITC entitlement where the policy itself is exempt and no GST is charged.
2. Existing Legal Position under Section 17(5)(b)(i)
Section 17(5)(b)(i) expressly restricts ITC on life insurance and health insurance.
Therefore, merely establishing that an insurance premium has been paid for business purposes does not automatically make the credit eligible.
However, there are three statutory exceptions.
| Existing exception | Legal condition | Applicability |
|---|---|---|
| Same-category outward taxable supply | Inward insurance is used for making an outward taxable supply of the same category | May apply to qualifying insurance-sector transactions |
| Taxable composite or mixed supply | Insurance is genuinely used as an element of an outward taxable composite or mixed supply | May qualify where the statutory conditions are satisfied |
| Insurance obligatory under law | Employer is legally required to provide the particular insurance benefit to employees | ITC may already be available under the existing statutory exception |
CBIC Circular No. 172/04/2022-GST, dated 6 July 2022, clarifies that the statutory-obligation exception applies to the entire Section 17(5)(b), including health insurance and life insurance.
Meaning of Insurance Obligatory under Law
An important distinction exists between insurance provided voluntarily by an employer and insurance required under an applicable law.
| Reason for providing insurance | Whether the statutory-obligation exception applies |
|---|---|
| Specific legislation requires the employer to provide the insurance | Yes, subject to the applicable conditions |
| Company voluntarily provides insurance under HR policy | No |
| Insurance is included in employees’ CTC | Not by itself |
| Appointment letter provides insurance benefits | Not by itself |
| Insurance is provided to attract or retain employees | Not by itself |
| Board of directors makes insurance compulsory as company policy | Not by itself |
| Employer is required under applicable law to maintain the particular insurance coverage | May qualify |
A contractual obligation or internal company policy should not automatically be equated with an obligation imposed by law.
The precise statutory requirement must be identified, and the purchased policy must satisfy that requirement.
The proposed amendment is therefore especially significant for voluntary group insurance, which is generally blocked under the existing provisions.
