Insurers to Apply 18% GST on Agents’ Commission to Offset Input Tax Credit Loss
The health insurance premium has been exempted from GST (Goods & Services Tax) under the new GST regime. It earlier attracted 18% GST, but now the rate has been reduced to Zero, reducing the financial burden on the common man. However, with GST reduction, the government has also clarified that the insurer companies will no longer be allowed to claim ITC on commissions, rewards, and other expenses, including rent, technology, and manpower. This change has added to the direct cost of insurance companies, affecting their profit and expense of management (EOM) ratios.
While the customers will benefit from the low-cost premium and from the GST reductions, the insurance industry will face high operating costs. Therefore, in an effort to adjust the loss due to the irrecoverable ITC claim, the insurers are planning to levy an 18% GST on commissions paid to the agents and distributors.
Aditya Birla Health Insurance (ABHI) has told its distributors that from October 1, 2025, GST will be levied on the commissions, rewards, and similar payments to agents. The insurers are in a critical situation, as the regulators want them to pass GST benefits on to the customers, but the current GST regime does not allow them to claim ITC. Therefore, the ABHI has proposed to include GST in all payments to the distributors to balance the interests of all stakeholders.
As per the experts, the new GST regime might put pressure on smaller distributors and individual agents, who are the key contributors in India’s insurance network. As per a brokerage, many agents could find health insurance sales less profitable or even impossible if their commissions are cut by 18%, unless companies change how they pay commissions or provide other incentives.
As per Aditya Birla Health Insurance, starting October 1, 2025, distributors will need to pay the GST on any commissions, rewards, or similar earnings they receive from both fresh and renewal business. For instance, if a distributor earns a commission of Rs 100, they will actually receive only Rs 84.74, since 18% GST will be deducted from the total payout.
Care Health Insurance commented on the challenges of the new GST regime, but also highlighted that it will ensure that it passes on the full benefits from the GST reduction to the customers. The company explained that health and general insurance firms still have to pay GST on costs like rent, technology, and contracted staff. “We will absorb the GST impact on these costs. However, GST on commissions will be passed on to distributors to keep things fair and protect our customers’ interests,” the company stated.
Other insurers like ICICI Lombard General Insurance also highlighted the margin pressures. It stated that the insurance companies are required to pass on the full GST benefits to the customers, but they cannot claim Input tax credit on commissions, administrative overheads, and operational costs. It further added that the current GST structure is increasing the operational expenses and affecting profit margins.
