Starting September 22, 2025, insurance companies will no longer be allowed to claim input tax credit (ITC) on Goods and Services Tax (GST) paid on commissions and brokerages for individual health and life insurance policies, according to a clarification issued by the Central Board of Indirect Taxes and Customs (CBIC) on Tuesday.
Why the Change?
This update comes ahead of the new GST slab structure, which exempts premiums for individual health and life insurance policies from the earlier 18% tax rate. While this provides some relief to policyholders, insurers will now have to bear the GST cost on commissions and related expenses, as they can no longer recover these taxes through ITC.
The CBIC clarified in its FAQs that while reinsurance services will continue to be exempt, other input services related to individual policies — such as agent commissions, brokerages, and operational costs — will not be eligible for ITC. This means the tax already paid on these inputs becomes a direct expense for insurance companies.
Impact on Service Providers
The CBIC pointed out that similar rules already exist for other industries operating under the 5% GST slab without ITC. Examples include:
Hotels charging room tariffs of ₹7,500 per day or less.
Beauty and wellness service providers operating at 5% GST without ITC.
In these cases, companies cannot claim credit for inputs used exclusively in such services. If businesses use goods or services partly for 5% GST supplies without ITC and partly for regular taxable supplies, they must reverse the credit proportionately.
What This Means for Insurers
For insurance companies, the latest clarification translates into higher operational costs. Since commissions and brokerages make up a significant portion of expenses in the insurance industry, this change could affect profitability and may influence how insurers structure their policies going forward.
Jyoti Gupta