The GST Council is expected to consider a proposal on 7 October to allow employers to claim input tax credit (ITC) on premiums paid for life and health insurance coverage provided to employees.
Currently, businesses pay GST on group-insurance policies purchased for their employees but cannot claim ITC on the tax paid on such premiums. An 18 per cent GST is levied on these group-insurance policies, adding to the cost of providing employee insurance coverage.
Under the existing GST framework, individuals purchasing life or health insurance for themselves or their families are exempt from GST. However, this exemption does not extend to policies purchased by employers for their workforce.
If approved, the proposed change could lower the cost of employer-sponsored insurance by allowing companies to offset the GST paid on premiums against their tax liability. The move could also make it easier for employers to provide or expand insurance benefits for their employees.
Sources said the proposed ITC mechanism could support wider adoption of insurance coverage among organised-sector employees, given that employer-sponsored health and life insurance is common across the formal workforce.
The proposal is expected to be discussed at the GST Council meeting scheduled for 7 October. However, the final scope and implementation of any changes will depend on the Council’s decision.
