A few weeks ago, one of our clients at Aplite Advisors, an IT company with around 200 employees, sat down with us to go through its GST costs. One line kept coming up: the GST on its group health insurance policy. The company pays it every year, and every year it cannot claim a rupee of it back.
That is not a compliance lapse on their part. It is the law. Section 17(5) of the CGST Act blocks credit on insurance unless the employer is legally required to provide it. So for most companies, this GST quietly becomes a cost, along with GST on outdoor catering, free samples and a few other routine expenses.
That may soon change. At its 57th meeting on 8 October 2026, the GST Council recommended amending Section 17(5) of the CGST Act, 2017 to remove the ITC restriction on six categories of business expenses.
Status as of 30th October 2026: These are recommendations, not law. They will take effect only after the CGST Act is amended and the relevant notification is issued. Until then, the existing Section 17(5) continues to apply.
What is Section 17(5)?
Section 17(5) is the “blocked credits” list under GST. It names goods and services on which input tax credit (ITC) is not available, even when they are used in the course of business.
The list covers items such as motor vehicles, food and beverages, outdoor catering, beauty treatment, health services, club memberships, life and health insurance, and works contract or construction of immovable property, subject to specific exceptions.
For a business, this means the GST paid on these items becomes part of the expense. It increases costs and blocks working capital, which industry has long argued is unfair where the spend is genuinely for business.
What the 57th GST Council recommended
The Council recommended amending Section 17(5) to remove the ITC restriction on these six categories:
| Category | Who benefits most |
| Health and life insurance (including group policies for employees) | Every employer offering insurance benefits |
| Outdoor catering services | Businesses hosting events, staff meals, client meetings |
| Free samples for business promotion | FMCG, pharma, consumer brands |
| Goods destroyed or written off on expiry of shelf life, as required by law | Pharma, food, FMCG, chemicals |
| Telecommunication towers | Telecom and tower infrastructure companies |
| Pipelines laid outside factory premises | Oil and gas, chemicals, manufacturing units |
The Council’s stated aim is to remove ITC blockage on genuine business costs and reduce the tax embedded in business expenditure.
What each change means for your business
1. Employee health and life insurance
This is the change with the widest impact. Today, ITC on group health or life insurance is allowed only where the employer is legally obliged to provide it. Most voluntary employee insurance therefore carries 18% GST as a pure cost.
Take the client I mentioned earlier, an IT company dealing in servers, hardware and cloud services. It pays around Rs 18 lakh a year in group insurance premium for about 200 employees. At 18%, that is roughly Rs 3.24 lakh of GST every year, which today goes straight to the profit and loss account. Once the amendment is notified, that becomes claimable ITC, year after year.
In my view, this is the most important change in the entire package for mid-sized employers. Group insurance is now a standard part of retaining staff, and the bigger the workforce, the bigger the saving.
2. Outdoor catering
Catering for office events, annual days, staff lunches and client meetings is currently blocked except in limited cases. The proposal would make this GST creditable.
3. Free samples
Under current law, ITC on goods given as free samples is blocked, and businesses often reverse credit on such goods. The proposal would let brands distribute promotional samples without losing the input tax.
4. Expired stock written off
Goods destroyed or written off because their shelf life expired, where the law requires destruction, would no longer need ITC reversal. This matters most for pharma, food and FMCG businesses, where expiry losses are routine and unavoidable.
We see this closely with a pharma client of ours with a turnover of over Rs 100 crore. For a business like that, expiry write-offs are a routine part of operations, and so is the ITC reversal that follows them. Removing this reversal would take an unavoidable loss out of the GST cost.
5. Telecom towers and pipelines outside the factory
These are currently blocked because they are treated as immovable property. The proposal would allow ITC on telecom towers and on pipelines laid outside factory premises, helping capital-heavy sectors.
What does not change
- Section 16 conditions still apply. You will still need a valid tax invoice, the supplier’s filing reflected in GSTR-2B, receipt of the goods or services, and payment within 180 days.
- Other blocked items stay blocked. Motor vehicles, food and beverages (other than outdoor catering), club memberships, beauty treatment, travel benefits and construction of immovable property are not part of this recommendation.
- Business use is still required. ITC will be available only where the expense is used in the course or furtherance of business.
- Final wording may differ. The exact scope will depend on the amended law and any conditions in the notification.
What businesses should do now
- Do not claim this ITC yet. Claiming before the law is notified can lead to demand, interest and penalty.
- Identify your exposure. List annual spend on group insurance, catering, free samples, expired stock write-offs, towers and pipelines, and the GST paid on each.
- Book these expenses under separate ledgers. Clear tagging will make it easy to claim credit from the effective date.
- Collect proper tax invoices. Make sure insurers, caterers and other suppliers issue GST invoices with your GSTIN, and that they appear in GSTR-2B.
- Review upcoming contracts. If you are renewing a group insurance policy or a large catering contract, check whether timing it after the notification date helps.
- Track the notification. Watch for the CGST Amendment and the effective date before changing your ITC position.
Conclusion
For our IT client, this one change could put over Rs 3 lakh back into working capital every year. Most employers will see a similar benefit on a smaller or larger scale. But until the amendment is actually notified, my advice to clients is simple: get your records in order, and hold off on claiming this credit.
Want to know how much GST your business could save? At Aplite Advisors, we review blocked credits for our clients and help them claim ITC correctly once the law changes. Get in touch for a review of your GST costs.
Contact: www.apliteadvisors.com | +91 90150 36021 | info@apliteadvisors.com
About the author: Gittesh Rattan is an Director and Counsel at Aplite Advisors, in practice since 2017. He advises businesses across Delhi NCR and other metro cities on GST and income tax compliance, tax advisory, audits, TDS, company incorporation and ROC compliances.
Disclaimer: This article is for general information only and does not constitute legal or tax advice. The recommendations discussed are subject to the final amended law and notifications.
Frequently Asked Questions
No. The change is only a recommendation. ITC will be available only from the date the amended law is notified.
Nothing indicates so. Treat it as applying prospectively from the notified date, unless the notification says otherwise.
The recommendation refers to health and life insurance broadly. Whether it covers policies for directors, partners or their families will depend on the final wording. Wait for the notification before taking a position.
Under current law, yes. Once the amendment is notified, reversal should not be needed where goods are destroyed or written off on expiry as required by law.
Only outdoor catering is named in the recommendation. Food and beverages in general remain blocked unless the final law says otherwise.
