MC EXCLUSIVE Insurance agents’ plea over commission cuts unlikely to be taken up by GST Council

The exemption of life and health insurance products has made insurers ineligible to claim input tax credit

In a representation to the Finance Ministry and the Goods and Services Tax (GST) Council, insurance agents have submitted that their commissions have been reduced by private players to offset losses occurring from the withdrawal of input tax credit (ITC) benefits, after insurance products were exempted in the recent GST 2.0 framework.

However, their demand for relief over commission cuts is unlikely to find traction with the GST Council as the government is viewing it as a matter between insurers and their agents rather than a policy concern, government officials have told Moneycontrol.

“Insurance agents have approached and sent representations to the Finance Ministry and the GST Council on their commissions getting reduced due to changes under GST 2.0. The Fitment Committee and the GST Council are unlikely to take it up for discussion as they feel the issue does not come under the purview of GST and is a sectoral issue,” one senior government official said.

Matter Between Insurers and Agents

Explaining the government’s stance, the official said the issue does not warrant intervention from the council as it arises from business arrangements within the industry.

“Agents are understandably concerned because their commissions have been cut following the withdrawal of input tax credit benefits,” the official said. “…this is a commercial matter between insurance companies and their agents. The council’s role is to frame tax policy, not to decide business terms. Companies are adjusting payouts based on their margins – GST cannot interfere in that.”

Insurers were aware they would lose ITC once exemptions were introduced. “The industry knew the implications of the exemption regime. If margins are now under pressure, companies and distributors will have to renegotiate terms – this isn’t a policy-level issue,” the official said.

The GST Council’s mandate is limited to rate rationalisation and tax structure issues, and not commercial arrangements between businesses and intermediaries. “This is not something the council can resolve,” he added.

Industry Impact

While customers benefit marginally from zero GST on insurance premiums, the insurers stand to lose the ability to claim ITC, leading to higher effective operating costs. This loss is being partly passed on to agents, which has triggered the current pushback from the distribution network.

To compensate for the cost hike, insurers have reduced commissions paid to agents and brokers and adjusted internal margins to partially absorb the hit.

Insurers don’t charge GST to customers – but they also cannot claim ITC on the GST they pay to vendors and agents. Those input taxes become a real cost to the company.

Insurance companies have reportedly reduced agent commissions by up to 18 percent, as ITC on exempted insurance policies – particularly health and life covers – can no longer be claimed. Instead, the companies are passing on the cost burden to their distribution partners in order to maintain profitability.

Input Tax Credit Changes

Under the GST 2.0 overhaul, the Council exempted GST on all individual life and health policies effective September 22, 2025. The standard rate of 18 percent that applied to many of these policies has thus been reduced to nil. The exemption applies only to individual policies and does not cover group insurance schemes (for instance employer-sponsored group life or group health).

The exemption of life and health insurance products has made insurers ineligible to claim input tax credit on services such as advertising, brokerage and distribution. This loss of credit has led insurers to reduce payout rates to agents, to offset the cost impact.