As promised by PM Modi on the ‘Independence Day’, the Centre cut the GST (goods and services tax) on life and health insurance from 18% to Nil and brought several other items under the two-slab tax structure of 5% and 18%, effective September 22, 2025. This, however, triggered a debate about the adjustment of input tax credit (ITC) by life and health insurance companies.
Earlier, insurers were able to claim ITC on GST paid for services such as commissions, office rent and other operational expenses. With GST now removed, insurance players have no option left to claim credit for the GST paid.
Life insurers cut distributors’ commission to offset ITC losses
Meanwhile, insurance companies have found a way to offset their ITC losses. They are now reducing brokerage and commission for distributors to save their margins.
According to a report, life insurance companies are all set to cut distributors’ commission by 18% on premiums from October 1, 2025. Distributors also include web aggregators, bank individual agents and brokers.
This cut in commission and rewards for distributors and individual agents will cover both the first premium and the renewal of policies, CNBC-TV18 reported citing sources.
Commissions trimmed on term, ULIPs and annuities
Distributors and agents will lose 18% commissions and rewards on all life insurance products like term, savings, ULIPs and annuities, according to the report.
Likely impact on insurers
Post GST rejig, many were expecting that insurers would be left with no other option than to pass on the ITC burden to consumers. In a report, soon after the GST cut, Kotak Institutional Equities Research said insurance companies might consider revising their tariffs by up to 5% to offset losses resulting from the absence of input tax credit.
“A back-of-the-envelope calculation suggests that health insurance companies may need to raise tariffs by 3-5%,” it said.
However, insurers have so far refrained from taking any such decision and are trying to find other means to compensate against ITC losses instead.