Insurers to Levy 18% GST on Agent Commissions After Tax Cut on Health Premiums

Insurance companies in India are facing a new challenge after the government decided to remove the Goods and Services Tax (GST) on health insurance premiums. Two weeks after this change, many insurers have announced that they will now charge 18 percent GST on commissions paid to their agents and distributors.

Earlier, when insurers charged 18 percent GST on health insurance premiums, they could also claim Input Tax Credit (ITC). This meant they could recover the GST they paid on their business expenses such as:

• Agent commissions
• Office rent
• Technology and IT systems
• Advertising
• Outsourced manpower

Now, because the GST on health insurance premiums is zero, insurers can no longer claim ITC. The GST they pay on these expenses has become a direct cost that they cannot recover. This is increasing their operating expenses and reducing profits.

To manage these higher costs, several insurers, including Aditya Birla Health Insurance, Star Health Insurance, and Care Health Insurance, have decided to include GST in commissions starting October 1, 2025.

This means the 18 percent GST will now be paid by the agents themselves. For example:

• If an agent was supposed to earn Rs. 100 as commission
• After applying 18 percent GST, the agent will now receive Rs. 84.74
• The remaining Rs. 15.26 will go as GST to the government

So, agents’ earnings will effectively reduce by 18 percent.

Impact on Agents and Distributors

• This decision could hurt small agents and distributors the most. Many individual agents depend on commissions as their main income. With an 18 percent cut, some may find it hard to continue selling health insurance.
• If agents drop out, it could reduce the reach of health insurance, especially in smaller towns where local agents play a key role.
• A Mumbai-based broker said that unless companies increase the commission rate or offer new rewards, many agents may stop promoting health insurance policies.

Impact on Customers

For customers, this change may look like good news at first. Since GST on health insurance premiums is now zero, policy prices may come down slightly.

However, if fewer agents are motivated to sell policies, fewer people may get access to health insurance in the long run. So, the benefit for customers might be small compared to the larger problems it creates in the system.

Experts explained that this problem is due to how GST rules work. A complete exemption (like 0% GST) blocks the company from claiming any ITC. If the government had instead reduced GST to 5 percent, insurers would still be able to claim partial credit on their input costs.

This shows how a well-intentioned move to reduce customer costs can have unintended side effects on businesses and workers.

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