One of the key changes is the removal of restrictions on input tax credit for health and life insurance taken for employees.
For businesses that provide such insurance as part of their employee benefits, the change could reduce the tax cost embedded in these expenses. It also brings greater alignment between business expenditure and the credit mechanism, particularly where such costs form part of routine employee-related spending.
Relief for telecom and infrastructure-heavy sectors
The Council has also recommended allowing ITC on telecommunication towers and pipelines laid outside factory premises. These are significant capital-intensive inputs for sectors such as telecommunications and infrastructure.
Earlier restrictions on credit for such items could result in GST becoming part of the cost of investment. Allowing ITC can reduce this cascading effect, as businesses would be able to offset eligible input taxes against their output tax liability.
The Council has specifically identified telecommunication towers and pipelines outside factory premises among the categories where credit will now be available.
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Free samples and expired inventory
The reforms also address a practical issue faced by manufacturers and other businesses that distribute free samples or have inventory that must be destroyed after its shelf life expires.
ITC will be available on free samples. Credit will also be permitted on stock written off because of expiry where another law requires the goods to be destroyed.
This could particularly benefit businesses that regularly use samples as part of their marketing or sales strategy, as well as sectors where products have strict shelf-life requirements.
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Push to reduce tax cascading
The wider objective is to ensure that GST paid at different stages does not unnecessarily become a cost for businesses when the underlying expenditure is part of their taxable business operations.
The Council has also expanded credit availability in other areas. It has allowed accumulated ITC on input services and capital goods for specified refunds involving inverted duty structures, with input-service credit available for ITC availed from November 1, 2026.
The ITC changes therefore form part of a broader attempt to make GST more credit-efficient. By reducing restrictions on legitimate business inputs, the reforms could lower embedded tax costs, improve working-capital efficiency and make the GST chain more seamless.
The impact, however, will depend on the detailed amendments and rules through which the Council’s recommendations are implemented.
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