GST Council recommends lifting input tax credit restrictions on employee insurance and key services.

In a major policy shift, the Goods and Services Tax Council has recommended the removal of restrictions on input tax credit for businesses purchasing health and life insurance policies for their staff. Under the existing framework, companies are barred from claiming credit on the taxes paid for such employee insurance. The new recommendation ensures that these expenses are recognized as legitimate business costs rather than becoming an additional tax burden.

The proposed relaxation is designed to benefit organized employers, who routinely provide insurance coverage to their workforces. By allowing the credit, the overall cost of offering these benefits to employees is expected to decrease. This change is also anticipated to support the broader insurance sector by encouraging wider coverage, while individual consumers purchasing personal or family insurance will remain ineligible for the credit.

Additionally, the tax authority has recommended allowing input tax credit for businesses that buy and resell specific services within the same line of business. This adjustment covers restaurant and catering services, fitness services, and hotel accommodation priced up to 7,500 rupees per night. The modification aims to eliminate the cascading tax effect that previously impacted intermediaries, tour operators, and aggregators.

For instance, booking a hotel room through an intermediary will no longer incur an extra tax expense at the intermediary level, as these businesses can now claim the credit. This adjustment is expected to establish a more balanced playing field between direct bookings and those made through third-party agencies. Similar relief applies to outdoor catering, beauty treatments, healthcare, and cosmetic or plastic surgery when procured for onward supply.

The pharmaceutical sector is also set to receive tax relief under the new recommendations. Drug manufacturers will be permitted to claim input tax credit on free medicine samples distributed to medical professionals. Furthermore, the credit will be accessible for medicines and other products that companies are legally required to destroy once they reach their expiration dates.

While several credit restrictions are being eased, the council has decided to defer its decision on input tax credit for motor vehicles. This specific matter has been referred to a committee of officers for more detailed evaluation. The overall rationalization of these blocked credits is intended to bring the national tax framework closer to its original design by reducing cumulative taxation on business inputs.

Key numbers

• Hotel room rate limit for credit: ₹7,500

What a board might note

• Should the finance department review the potential tax savings on employee health and life insurance premiums under the recommended GST Council guidelines?
• How will the new credit rules for resold services affect the pricing and margin structures of our bookings made through intermediaries or tour operators?
• Does the company need to adjust its accounting processes for expired pharmaceutical products or free samples to claim the newly allowed input tax credits?

Source: The Hindu BusinessLine Economy, 8 October 2026. This is a summary of a news report, published as general information. It is not legal, tax or investment advice.