GST Council Unlikely to Address Insurance Agents’ Commission Cuts
Issue: Insurance agents and distributors submitted representations seeking relief from the Goods and Services Tax (GST) Council regarding commission cuts implemented by private insurers. The cuts were made by insurers to offset their own financial loss resulting from the withdrawal of Input Tax Credit (ITC) after insurance premiums were exempted from GST.
Facts:
- The GST 2.0 framework exempted individual life and health policies from the 18% GST effective September 22, 2025.
- This exemption simultaneously made insurers ineligible to claim ITC on expenses (such as brokerage, advertising, and distribution commissions).
- To compensate for the resulting higher effective operating costs, insurers reportedly reduced agent commissions by up to 18 percent.
- Insurance agents and associations submitted representations to the Finance Ministry and the GST Council.
Decision:
Government officials stated that the insurance agents’ demand for relief is unlikely to be taken up for discussion by the GST Council. The issue is viewed as a commercial matter between insurers and their agents, falling outside the policy purview of the GST framework.
Key TakeDowns:
- Commercial vs. Tax Policy: The government considers the commission structure a business arrangement for which GST cannot interfere. Insurers are adjusting payouts based on their internal margins to absorb the ITC loss.
- Known Implications: Officials noted that the industry was aware of the financial implications (loss of ITC) when the exemption regime was introduced.
- Impact of ITC Loss: While the customer benefits from zero GST on premiums, the financial hit is absorbed by the sector (manufacturer, distributor, and vendor).
- GST Council’s Mandate: The Council’s mandate is limited to tax policy (rates, structure, exemptions) and does not extend to regulating commercial contracts or business terms between private entities.
Source :- Money Control