Insurance Agents Hit by 18% Fee Cut as Insurers Offset Loss of GST Input Tax Credit

Insurance Agents Hit by 18% Fee Cut as Insurers Offset Loss of GST Input Tax Credit

• Commission Reduction Tied to GST Exemption

  Following the complete removal of 18% GST on premiums for retail life, health, and accident insurance policies, several leading private insurers have slashed their agent/distributor commissions by the same percentage (18%). This is an attempt by the insurers to pass the entire tax benefit to customers.

• Insurers’ Financial Rationale

  The key reason for the commission cut is to partially offset the substantial loss of Input Tax Credit (ITC). When GST was charged on policies, insurers could claim ITC on expenses (estimated at 2.2-2.7% of policy value). With the GST exemption, they can no longer claim this credit. Industry experts estimate the overall financial impact on the insurance sector from this ITC loss to be around ₹15,000 crore annually.

• Distributors’ Financial Burden and Concern

  Insurance agents and distributors have heavily criticized the move. The cut means a commission that was ₹1,000 is now effectively reduced to ₹847. Furthermore, with the exemption, agents’ bodies argue that distributors themselves lose the ability to claim ITC on their own business expenses (like rewards and commissions), and some insurers are now requiring distributors to pay GST from their commissions, severely affecting their take-home pay. Agents warn this move risks weakening the distribution channel, especially in rural areas, potentially undermining the goal of expanding insurance penetration.

Source:- newindianexpress