New Delhi, Insurance companies will not be able to claim input tax credit on GST paid on inputs like commissions and brokerages for individual health and life insurance policies with effect from September 22, the CBIC said on Tuesday.
The Central Board of Indirect Taxes and Customs (CBIC) has issued a set of FAQs clarifying on the taxation of various goods and services when the new GST slabs kick in from September 22.
The GST Council in its meeting on September 3 had decided to exempt premium paid on individual health and life insurance policies from GST effective September 22, from the current 18 per cent rate.
To a question which input services of insurers are exempt from GST, the CBIC said at present, insurers are availing ITC on many inputs and input services such as commissions, brokerage and reinsurance, etc.
” Out of these input services, reinsurance services will be exempted. Input Tax Credit of other inputs or input services is to be reversed because the output services will be exempted,” the CBIC said.
This would mean that taxes paid on inputs like commissions and brokerages in case of individual insurance policies will be a cost to the insurance companies as they will not be able to adjust such taxes.
The CBIC also clarified that hotels supplying units of accommodation which have value less than or equal to Rs 7,500 per unit per day, shall not be able to avail ITC on such units, as the GST rate for such supplies is 5 per cent without ITC. Similarly, the 5 per cent without ITC rate on beauty and physical well-being services is mandatory.
Such service providers who are in the 5 per cent without ITC category do not have the option to charge 18 per cent with ITC on these services, the CBIC said.
“The government wants that the end customer gets the maximum benefits out of these changes, therefore, has not allowed dual-rate structure for these industries,” Nangia Andersen LLP Partner- Indirect Tax Rahul Shekhar said.
As per the FAQ, businesses which are in the 5 per cent slab without input tax credit (ITC), will not be able to claim credit on the taxes paid on input of such goods and services. For example: A hotel buying toiletries or amenities used entirely for rooms charged at 5 per cent without ITC cannot avail ITC on those purchases.
“Credit of input tax charged on goods or services used exclusively in supplying such services shall not be taken by the service provider,” the CBIC said.
However, in cases where goods or services are used partly for supplies taxable at 5 per cent without ITC, and partly for other taxable supplies (say, charged at 18 per cent with ITC), the credit has to be apportioned.
“Credit of input tax charged on goods or services used partly for supplying such services and partly for supplying other taxable supplies shall be reversed by the service provider as if the supply leviable to 5 per cent without ITC is an exempt supply. Consequently, proportionate ITC shall be required to be reversed by the service provider,” the CBIC said.
AMRG & Associates Senior Partner Rajat Mohan said when GST law prescribes a concessional rate of 5 per cent without ITC, it effectively denies credit on inputs, treating such supplies at par with exempt services.
“The rationale is to simplify compliance and reduce tax incidence for end consumers, but the trade-off is denial of ITC to service providers. Thus, while customers enjoy lower tax rates, suppliers bear the embedded cost of GST in their input chain, requiring careful apportionment and reversal mechanisms,” Mohan added.
To a question on what insurance services covered within the ambit of the exemption granted to individual life and health insurance, the CBIC said services of individual health and life insurance business provided by insurers to the insured, except for group insurance, are included within the ambit of the exemption.
“When these services are provided to an individual, or to an individual with his/her family, the same will be exempted,” it added.
Regarding taxation of bricks under GST, the CBIC said the 56th GST council meeting on September 3, 2025 did not recommend any change on the special composition scheme rates except on sand lime bricks on which taxes have been reduced from 12 per cent to 5 per cent.
Hence, all kinds of bricks, except sand lime bricks, continue to attract GST of 6 per cent without ITC and 12 per cent with ITC with a registration threshold limit of Rs 20 lakh.
With respect to re-labelling of medicines already in the supply chain, the CBIC FAQ reiterated the directions of the National Pharmaceutical Pricing Authority (NPPA) which said that MRP of medicines must reflect the new GST rates, but recalling or re-labelling existing stock issued before September 22, 2025 is not required, if compliance can be ensured by providing revised price lists to dealers/ retailers.
” However, the same issue will be faced by other sectors such as FMCG and companies in retail sector, the government should come out with a clarification for other sectors as well clarifying how reduced price can be passed on to the end customer on the stock already with retailers, dealers, without changing the MRP on the products,” Shekhar said. PTI>
