Service tax on sub broker insurance

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Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2012 What is the relevant legal requirements with respect to service tax applicability on insurance sub brokers...as some banks pay for service tax while others donot

Querist : Anonymous

Querist : Anonymous (Querist)

25 October 2012 Please revert

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Great question! Here's a clear explanation regarding **service tax on insurance sub-brokers**:

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### 1. **Is service tax applicable on insurance sub-brokers?**

* Yes, **service tax is applicable** on services provided by **insurance sub-brokers**.
* Insurance sub-brokers provide **intermediary services** in insurance transactions, which fall under the category of **"Insurance Auxiliary Services"** under the Service Tax Law.
* The Finance Act and relevant notifications make it clear that such intermediary services attract service tax.

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### 2. **Who is liable to pay the service tax?**

* **Generally, the insurance sub-broker (service provider) is liable to pay service tax on the brokerage or commission earned.**
* However, in some cases, the **service receiver (e.g., the insurance company or bank)** may be liable to pay service tax under the **Reverse Charge Mechanism (RCM)** — but this depends on specific circumstances and notifications.

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### 3. **Why do some banks pay service tax and others don't?**

* This inconsistency arises because of different interpretations or **contractual arrangements** between banks and sub-brokers.
* Some banks may treat the payment as a commission liable to service tax under RCM, and so they pay service tax on behalf of the sub-broker.
* Others may expect the sub-broker to pay the service tax directly.
* The **CBEC clarifications and notifications** on RCM specify when the service receiver has to discharge the service tax liability.

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### 4. **Relevant legal provisions & notifications:**

* **Service Tax on Insurance Auxiliary Services** — under the heading "Insurance Auxiliary Service" (Tariff Heading 99877).
* **Reverse Charge Mechanism** is applicable on specific services notified by CBEC, which may include insurance-related services.
* Notifications such as **Notification No. 30/2012-ST dated 20 June 2012** specify certain services on which RCM is applicable.

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### **Summary:**

| Aspect | Explanation |
| --------------------------- | -------------------------------------------------------------------------------------------- |
| Applicability | Service tax applies to insurance sub-brokers for commission/ brokerage earned |
| Who pays service tax? | Generally sub-broker; sometimes bank pays under RCM depending on agreement and notifications |
| Why difference among banks? | Due to interpretation of RCM applicability and contractual terms |
| Relevant legal reference | Service Tax Act, Notification No. 30/2012-ST, Insurance Auxiliary Services |

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If you want, I can help you with exact references to notifications or help draft a compliance checklist for your insurance sub-broker setup. Would you like that?

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