Health and life insurance policies will not receive GST ITC benefits. Find out what the CBIC says.
GST Exemption: Following the GST Council's decision, premiums on health and life insurance policies have been exempted from tax, but commission agents and brokers will not receive input tax credit (ITC). The CBIC clarified that only reinsurance services will be exempt, while ITC on other inputs will be withdrawn. Hotel, beauty, and health services will also continue to attract 5% GST without ITC. This move, while providing relief to customers, may increase costs for service providers.
GST Exemption: The GST (Goods and Services Tax) Council has exempted health and life insurance policyholders from tax on policy premiums, but commission agents and brokers will not benefit from this benefit. The Central Board of Indirect Taxes and Customs (CBIC) announced on Tuesday that insurance companies will not be able to claim input tax credit (ITC) on GST paid on inputs, such as commission and brokerage, for personal health and life insurance policies from September 22nd.
CBIC Releases FAQs
CBIC has released a list of frequently asked questions (FAQs) clarifying the taxation of various goods and services when the new GST slabs come into effect from September 22, 2025. In its meeting on September 3, the GST Council decided to exempt premiums paid on personal health and life insurance policies from GST. Currently, these are subject to GST at the rate of 18%. The exemption will be effective from September 22.
Who is availing ITC?
Which 'input' services of insurance companies are GST-free? In response, CBIC stated that currently, insurance companies avail ITC on several inputs and input services, such as commission, brokerage, and reinsurance. "Of these input services, reinsurance services will be exempt. In the case of other raw materials, input tax credit will be withdrawn," CBIC said. This is because final product services are being exempted from GST. This means that in the case of personal insurance policies, taxes paid on inputs such as commissions and brokerage will be a cost to insurance companies, as they will not be able to offset such taxes.
Hotels offering rooms for Rs. 7,500 also denied benefits
The CBIC also clarified that hotels providing housing units priced less than or equal to Rs. 7,500 per room per day will not be able to avail ITC on such units. This is because such supplies are taxed at a 5% GST rate without ITC. Similarly, beauty and physical fitness services are taxed at a 5% GST rate without ITC. The CBIC stated that service providers falling in the 5% category without ITC do not have the option to charge 18% with ITC on these services.
No credit claim for the 5% slab
According to the FAQ, businesses that are in the 5% slab without input tax credit (ITC) will not be able to claim credit on taxes paid on the raw materials for such goods and services. For example, a hotel that purchases fully used toiletries or amenities for rooms, on which ITC is not claimed at the rate of 5%, cannot avail ITC on those purchases. The CBIC stated, "Credit of input tax levied on goods or services used exclusively in the supply of such services will not be taken by the service provider."
Which services will the credit be apportioned?
However, in cases where goods or services are used partly for supplies taxable at 5% without ITC and partly for other taxable supplies (say, 18% taxable with ITC), the credit must be apportioned. The CBIC stated, "Credit of input tax levied on goods or services used partly for the supply of such services and partly for other taxable supplies shall be reversed by the service provider in the same manner as a five percent taxable supply without ITC is an exempt supply. Consequently, the service provider will be required to reverse the proportionate ITC."
Which insurance services will be exempt?
Which insurance services are covered under the exemption for personal health and life insurance? In response to this question, the CBIC stated that, except for group insurance, services provided by insurers to the insured in the business of personal health and life insurance are exempt. It added, "When these services are provided to an individual or his or her family, they will be exempt."
5% GST on sand lime bricks
Regarding the taxation of bricks under GST, the CBIC stated that the 56th GST Council meeting held on September 3, 2025, did not recommend any changes to the rates under the special composition scheme, except for limestone bricks, which have been reduced from 12% to 5%. Therefore, all types of bricks, except limestone (sand lime), will continue to attract GST at 6% without ITC and 12% with ITC. The registration limit for these bricks is ₹20 lakh.
What Experts Say
Rahul Shekhar, Partner (Indirect Tax), Nangia Andersen LLP, said, "The government wants the end consumer to benefit the most from these changes, so it has not allowed a dual rate structure for these industries." He added, "Other sectors, such as FMCG (companies manufacturing daily use goods) and retail, will also face the same problem." The government should also issue clarifications for other sectors on how lower prices can be passed on to end-consumers on stocks already held by retailers and dealers without changing the MRP of products.
Rajat Mohan, Senior Partner at AMRG & Associates, said that when the GST law sets a concessional rate of 5% without ITC, it effectively denies credit on inputs and treats such supplies as exempt services. He said, "The aim is to simplify compliance and reduce the tax burden for end consumers, but in turn, service providers are denied ITC. Thus, while customers benefit from lower tax rates, suppliers have to bear the inherent cost of GST in their input chain, which requires careful apportionment and reversal."
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