Group medical cover is one of the largest GST costs an employer carries and cannot recover. Premiums attract 18% GST, the credit is blocked, and for a company spending ₹20 lakh a year on cover that is roughly ₹3 lakh of tax written straight to expense.
The 57th GST Council has recommended amending section 17(5) to allow input tax credit on health and life insurance for employees, along with outdoor catering, telecom towers and pipelines outside factory premises. Until the CGST Act is actually amended, the credit remains blocked and claiming it is a wrong availment. Nothing changes for your current returns.
Want to know what this is worth to your business when it lands? WhatsApp us your annual premium and we will work out the recoverable tax.
Quick Summary
| Position today | Recommended position | |
| Group health insurance for employees | ITC blocked under s.17(5)(b) | ITC allowed |
| Group life insurance for employees | ITC blocked under s.17(5)(b) | ITC allowed |
| Cover obligatory under a law (e.g. ESI) | ITC already allowed | Unchanged |
| Outdoor catering for employees | ITC blocked unless obligatory | ITC allowed |
| Telecom towers | Excluded from plant and machinery | ITC allowed |
| Pipelines laid outside factory premises | Excluded from plant and machinery | ITC allowed |
| Free samples | ITC blocked under s.17(5)(h) | ITC allowed |
| Stock destroyed after shelf-life expiry, where law requires destruction | ITC blocked under s.17(5)(h) | ITC allowed |
💡 TaxKitab Tip Do not start claiming, but do start capturing. From this month, make sure every insurance invoice carries your GSTIN correctly and appears in your GSTR-2B. The commonest reason a business cannot claim a credit the day it becomes available is that the policy was taken in a director’s name, or the insurer billed to an address without the GSTIN, and the invoices for the whole period are unusable. Fixing that with the insurer takes a phone call now and a renewal cycle later.
What the Rule Is Today
Section 17(5)(b) of the CGST Act blocks input tax credit on food and beverages, outdoor catering, health services, and health and life insurance.
There is one exception, and it is narrower than most employers assume: the credit is available where providing the goods or services is obligatory for an employer under any law for the time being in force. Employees’ State Insurance contributions qualify. A voluntary group mediclaim policy, however generous, does not.
The practical effect is that a business pays 18% GST on its group health and life premiums and absorbs all of it. Over a few years, in a company of any size, that is a meaningful number sitting in employee benefit expense rather than in the credit ledger.
What the Council Recommended
At its 57th meeting on 8 October 2026, the Council recommended amending section 17(5) so that input tax credit is available on:
- outdoor catering
- health and life insurance
- telecom towers
- pipelines laid outside factory premises
- free samples
- goods destroyed or written off on expiry of shelf life, where destruction is required by law
Telecom towers and external pipelines are a separate point of long-standing dispute. The Explanation to section 17 defines plant and machinery and specifically excludes telecommunication towers and pipelines laid outside factory premises, which is why credit on them has been denied. Removing that exclusion is a significant change for telecom infrastructure and for process industries with cross-site pipeline networks.
Why You Cannot Claim It Yet
Section 17(5) is in the Act, not in the Rules. Changing it requires an amendment to the CGST Act passed by Parliament, with matching amendments to each State GST Act. That is the slowest of the three routes a GST Council recommendation can take, and in practice it usually travels with a Finance Bill.
Until that happens, the blocked-credit entry stands. Availing the credit early produces a wrong availment, recoverable with interest under section 50 and penalty, and it shows up immediately because the credit sits against an insurance HSN in your GSTR-2B.
There is also no indication yet whether the change will apply to credit availed on or after a stated date, or to invoices issued on or after one. Two other ITC changes from the same meeting do carry dates — inverted-duty input services from 1 November 2026, capital goods from 1 April 2027 — but the section 17(5) relaxation was announced without one. That detail will matter a great deal to how far back you can go, and it will be in the notified text rather than in the press release.
What It Is Worth
The arithmetic is simple enough to do now.
Annual premium on group health and group life, excluding GST, multiplied by the GST rate on the policy. Most group health and group life premiums attract 18%. On ₹20 lakh of annual premium that is ₹3.6 lakh of tax, currently unrecoverable.
Two things determine whether you actually recover it when the change lands. First, whether the invoices are in the entity’s name with the correct GSTIN — a policy bought in a promoter’s name is not the company’s credit. Second, whether you make exempt or non-taxable supplies, because the credit will still be subject to the apportionment rules in section 17(1) and (2). A business with a mixed supply profile recovers only the taxable proportion.
What to Do Between Now and the Notification
Check whose name the policies are in. Entity name, correct GSTIN, correct registered address. This is the single most common blocker.
Confirm the invoices appear in GSTR-2B. If the insurer is not reporting them, the credit will not be available whatever the Act says.
Keep the premium separable in your ledger. Group health, group life and any other employee cover posted to one combined account makes the eventual claim harder to substantiate. Separate accounts now, or at least separate sub-ledgers.
Do not change your return. No part of this is claimable yet.
Watch for the amendment, not the news. The change is live when the CGST Act amendment is notified, which you will find on cbic.gov.in rather than in commentary.
How This Sits With the Rest of the Meeting
This is one of several items from a large set of recommendations, most of which still need notification — the full list, with status against each, is in the 57th GST Council meeting summary. Two other items from the same meeting matter more immediately to employers: the removal of arrest powers under section 69 and the automation of registration amendments and cancellation. And because employee cover sits across GST and payroll, employers reviewing benefit costs should read it alongside what the new labour codes change for employers.
Frequently Asked Questions
Can I claim ITC on group mediclaim from October 2026? No. Section 17(5)(b) still blocks it. The Council has recommended a change; the Act has not been amended.
Is ESI contribution ITC already available? The obligatory-under-law exception in section 17(5)(b) covers benefits an employer is required by law to provide. ESI falls in that category. Voluntary cover does not.
Will the change be retrospective? Nothing announced suggests so. The two dated ITC changes from this meeting are prospective — 1 November 2026 and 1 April 2027 — and the section 17(5) relaxation carries no stated date at all. Assume prospective until the notified text says otherwise.
My policy is in the director’s name but the company pays. That credit will not be available even after the amendment. The invoice has to be in the registered entity’s name with its GSTIN. Change it at renewal.
Does this apply to keyman insurance or director-only cover? The recommendation refers to health and life insurance without distinguishing. How far it extends beyond employee cover will depend on the amended wording, and on the general business-purpose test in section 16.
We make some exempt supplies. Do we get the full credit? No. Section 17(1) and (2) apportionment will still apply, so you recover the proportion attributable to taxable supplies.
References
- PIB, Ministry of Finance — “Recommendations of the 57th Meeting of the GST Council”, Press Release ID 2320934, 8 October 2026
- CGST Act, 2017 — Section 17(5)(b) and (h); Explanation to Section 17 on plant and machinery; Sections 16, 17(1) and 17(2); Section 50
- CBIC clarification treating ducts and manholes in an optical fibre cable network as plant and machinery
⚠️ This change requires an amendment to the CGST Act and matching State GST Act amendments. It is not in force. Verify the notified text on cbic.gov.in before claiming any credit described here.
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