Agents and industry associations are likely to take up the GST-related Input Tax Credit (ITC) issue with IRDAI and the Finance Ministry, after private insurers slashed distributor payouts by 15–18 percent to offset the loss of ITC.
Industry sources said, the current GST framework, if left unadjusted, could set a precedent where insurers maintain profitability by squeezing distribution costs rather than improving efficiency.
Echoing these thoughts, “this is not a small change. It directly cuts into the working capital of agencies, brokerages, and individual advisors. Many small and independent operators will struggle to stay viable,” said Prashant Mhatre, President, General Insurance Agents Federation Integrated.
He added that forcing distributors to pay GST from their commissions will reduce take-home income and morale, especially in smaller towns and rural markets. “If our earnings are cut, motivation will fall, and access to insurance will shrink. This is against the Prime Minister’s vision of Insurance for All by 2047,” he said.
Strict cost controls and tighter regulatory expense caps maybe prompting private insurers to reduce distributor payouts by 15-18 percent to offset the loss of ITC following the GST exemption on life and health insurance premiums.
In contrast, LIC and other public sector insurers, although not publicly disclosed, may have decided to maintain existing commission structures, even as they pass the full GST relief to policyholders.
LIC, according to internal sources, plans to offset the impact through higher policy sales and new product pricing. The corporation currently has 15 lakh agents that generate nearly 95 percent of its new business, according to their financial disclosures, making its decision crucial for field morale.
“LIC has perhaps learnt from last year’s experience that cutting commissions hurts sales, and won’t repeat that,” said a senior official, referring to the 2024 reduction in first-year payouts after the surrender value revision.
Industry sources further confirmed that public sector general insurers, including New India Assurance, Oriental Insurance, United India Insurance, and National Insurance have also opted against cutting commissions, choosing instead to absorb the ITC loss, for the same reason.
Emails sent to LIC, New India Assurance, Oriental Insurance, United India Insurance, and National Insurance remain unanswered until the time of publication.
However, the picture is markedly different for private players.
Private insurers are passing on the ITC burden to agents because their business models and cost structures leave little room to absorb additional expenses, unlike LIC and PSUs that may have broader mandates and government backing.
The removal of ITC has raised operating costs by roughly 2-3 percent of premiums since insurers can no longer claim tax credits on rent, technology, and commissions, according to a leader life insurance company executive.
“Private companies must adhere to stricter IRDAI Expense of Management (EoM) caps, and also tend to face continuous investor scrutiny. Absorbing this loss would directly dent profitability and risk regulatory breaches,” the executive said
In a notice to their partners, from October 1, 2025, several private general and standalone health insurers including Tata AIG, Aditya Birla Health Insurance (ABHI), Niva Bupa, Care Health, and ICICI Lombard will implement revised commission structures making payouts inclusive of 18 percent GST. This means distributors will bear the tax cost.
The notice has been seen by Moneycontrol.
The change follows the GST Council’s decision to exempt premiums on individual health, life, and accident insurance policies from tax after September 22, 2025. While this benefits customers by removing the 18 percent GST on premiums, it simultaneously prevents insurers from claiming input tax credit on operating expenses.
“As insurance companies are no longer eligible to claim ITC, this will increase costs impacting profitability and expense ratios,” Tata AIG said in a notice to partners.
ABHI echoed the view, noting that GST costs would now be borne by distributors as ITC would no longer apply on commissions, rewards, or corporate expenses. Care Health Insurance also confirmed that while it would absorb GST impact on rent and technology costs, the effect on commissions would be passed to agents.
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