Business Owners! Stop Paying 18% GST on Insurance from Your Pocket. Claim It as 'Input Tax Credit (ITC)' to Save Thousands

Claim It as 'Input Tax Credit (ITC)' to Save Thousands

You run a small manufacturing unit or a consulting firm. You pay ₹50,000 annually for your factory fire insurance and another ₹1 Lakh for Group Medical Cover for your staff.

On every invoice, you see a line item: GST (18%).
That means out of your payment, ₹27,000 is tax.

If you are a regular individual, that money is gone. But if you have a GST Registration Number, that ₹27,000 is not an expense—it is an asset. You can claim it as Input Tax Credit (ITC) to reduce your monthly tax liability.

However, the rules have changed in 2025-26. Claim the wrong credit, and you get a notice. Today, we decode Section 17(5) of the CGST Act for business owners.

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The Golden Rule: "Furtherance of Business"

To claim ITC on anything, the expense must be "used for the furtherance of business."

• Allowed (Green Light): Insurance for factory machinery, office laptops, marine cargo, and office buildings. These are purely business assets.
• Blocked (Red Light): CSR expenses and most passenger vehicles.

Motor Vehicle Insurance: The "13-Seater" Rule

Most business owners buy a car in the company's name and try to claim the GST on insurance. Stop!

Section 17(5)(ab) says: ITC on Motor Vehicles is BLOCKED.

If the vehicle has a seating capacity of up to 13 persons (including driver), you CANNOT claim ITC on the insurance, repairs, or purchase. Even if the CEO uses it for meetings, the government considers this personal consumption.

✅ When Can You Claim on Vehicles?

You can claim ITC on vehicle insurance ONLY if:

1. It is a Truck/Tempo: Vehicles used for transport of goods are always allowed.
2. It is a Bus: Vehicles with seating capacity > 13 persons (e.g., staff shuttle bus) are allowed.
3. Specific Businesses: You run a taxi service, driving school, or are a car dealer.

Health Insurance: The 2025 Update

There was a massive change in September 2025. Here is the new reality:

• Individual Policies: GST on individual health/life insurance is now 0% (Exempt). Since there is no tax, there is no ITC to claim.
• Group Health Insurance (For Employees): This still attracts 18% GST.

Can you claim ITC on Group Insurance?
Generally, NO. ITC on employee health insurance is BLOCKED under Section 17(5)(b), unless it is obligatory for an employer to provide it under any law (e.g., specialized factories with hazardous waste).

(Warning: If you buy a policy just as a perk for staff, you likely cannot claim the ITC.)

What Should You Claim Today?

Here is your safe list. Open your GSTR-3B and ensure you are claiming credit for these:

• Fire & Burglary Insurance: For your office, shop, or warehouse. (100% Allowed)
• Marine/Transit Insurance: For goods you import or export. (100% Allowed)
• Cyber Liability Insurance: For your IT business protection. (100% Allowed)
• Workmen’s Compensation: Often mandatory by law, hence ITC is allowed.

Action Plan: Check Your GSTIN

1. Update Your Policy: Call your insurance agent. Ensure your GSTIN Number is printed on the insurance policy document. If it's not there, you cannot claim credit.
2. Check GSTR-2B: Log in to the GST portal. Ensure the insurance company has filed their return and the credit is visible in your GSTR-2B statement (not just 2A).
3. Avoid CSR: Do not claim ITC on insurance bought for Corporate Social Responsibility activities. The 2023 amendment explicitly blocks this.

(Disclaimer: GST laws are subject to frequent amendments. This article is based on the CGST Act provisions as of January 2026. Always verify eligibility with a Chartered Accountant.)

Save Where You Can

In business, every rupee saved is a rupee earned. Don't let your legitimate tax credits sit unclaimed in the government's treasury.