The GST Council is expected to consider a proposal to ease restrictions on Input Tax Credit (ITC) for several business expenses, including employee life and health insurance, outdoor catering, free samples, and certain goods destroyed or written off.
The Council’s Law Committee has recommended five amendments to Section 17(5) of the Central Goods and Services Tax (CGST) Act. The proposals are expected to be taken up at the Council’s meeting on October 7, 2026.
However, the committee reportedly did not reach a consensus on extending similar relief to motor vehicles and their leasing, renting or hiring. The issue has been left for the Council to decide.
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Proposed Changes To Blocked Credit Provisions
Section 17(5) identifies categories of goods and services on which GST credit is restricted, subject to specified exceptions. The reported recommendations seek to reconsider some of these restrictions where expenditure arises from genuine business requirements.
If approved and implemented through the necessary legal changes, the proposals could reduce the tax cost of employee welfare measures, promotional activities and certain inventory losses. The extent of relief would depend on the final wording adopted.
Employee Insurance Could Become Eligible For ITC
One of the principal proposals is to remove life and health insurance from the relevant blocked-credit provision, potentially benefiting employers purchasing taxable group insurance policies for their employees.
The official quoted in the report explained that employee group insurance can constitute a business expense. Blocking credit on the GST paid for such coverage increases the employer’s cost despite its connection with business operations.
The distinction between individual and group insurance is significant. The Department of Financial Services clarifies that the insurance exemption covers individual life and health insurance policies, including individual health policies with family floater coverage, while group insurance policies continue to attract 18% GST.
The proposed change therefore concerns the availability of credit on taxable insurance expenditure incurred by businesses. It would not create a credit entitlement where no GST has been charged.
Relief Proposed For Outdoor Catering
The Law Committee has also reportedly favoured removing the restriction on ITC for outdoor catering used for business purposes.
According to the report, catering expenditure for conferences, business events and staff functions may have a direct connection with an enterprise’s operations. Employee catering and canteen arrangements are also increasingly treated as operational requirements, particularly by large organisations.
Existing law already contains an exception where an employer is legally obliged to provide the relevant goods or services to employees.
The recommendation seeks to address business expenditure beyond that situation. However, the report indicates that catering used for personal or non-business purposes would remain outside the intended relief.
Free Samples Recognised As A Business Promotion Expense
The proposal could also ease the credit restriction affecting goods distributed as free samples.
The official highlighted that sample distribution is a routine commercial practice in sectors such as pharmaceuticals and fast-moving consumer goods. Businesses use samples to introduce products, develop markets and attract customers.
The committee’s reported reasoning is that denying credit on these goods adds to the cost of a normal business activity. Removing the restriction could reduce the tax burden associated with such promotional expenditure.
Under the existing framework, Section 17(5)(h) blocks ITC on goods disposed of as gifts or free samples. CBIC’s Circular No. 92/11/2019-GST explains the treatment of free samples, including the exception relating to supplies covered by Schedule I.
Expired Goods And Mandatory Destruction Also Under Consideration
The reported recommendations also address goods destroyed or written off after the expiry of their shelf life, where disposal is required for compliance with law.
Such losses can arise in businesses dealing with products that cannot legally remain in circulation after expiry. The proposal seeks to prevent denial of credit in the circumstances described in the report.
Importantly, the reported reasoning concerns expiry-related destruction or write-offs linked to legal compliance. It should not be read as confirmation that every category of stock loss or voluntary write-off would become eligible for credit.
No Agreement On Motor Vehicle Credit
The Law Committee reportedly remained divided over relaxing ITC restrictions on motor vehicles and their leasing, renting or hiring.
Some members expressed concern that vehicles acquired for personal consumption could be presented as business expenditure, potentially creating opportunities for misuse and significant revenue implications.
The report also refers to a suggestion to provide relief for vehicles alone. With no consensus reached, the Council will have to determine whether any relaxation should be recommended and what conditions should accompany it.
Council Decision And Legal Implementation Awaited
The recommendations remain proposals awaiting consideration. They do not, by themselves, alter existing ITC eligibility.
Any relief would depend on the Council’s decision, the required amendments and their effective date. Businesses will therefore need to assess credit claims under the law currently in force until the proposed changes are formally implemented.
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