Several private insurers in India have reduced distributor payouts by 15-18% to offset losses from the removal of Input Tax Credit (ITC) under GST, prompting industry associations and agents to escalate the issue with IRDAI and the Finance Ministry.
Industry insiders warn that the current GST framework, if unadjusted, could set a precedent where insurers maintain profitability by squeezing distribution costs rather than improving operational efficiency.
"This is not a small change. It directly cuts into the working capital of agencies, brokerages and individual advisors. Many small and independent operators will struggle to stay viable," said the President of the General Insurance Agents Federation Integrated. He added that forcing distributors to bear GST from their commissions could reduce take-home income and morale, particularly in smaller towns and rural markets, which may hinder the government's Insurance for All by 2047 vision.
Public vs. Private Insurers: Diverging Approaches
While private insurers are passing the ITC burden to agents, LIC and other public sector insurers appear to be maintaining existing commission structures. Sources indicate LIC plans to offset the impact through higher policy sales and new product pricing, safeguarding morale among its 15 lakh agents, who contribute nearly 95% of new business.
"LIC has learnt from past experience that cutting commissions hurts sales and will avoid repeating the 2024 reduction in first-year payouts," said a senior LIC official. Similarly, public sector insurers including New India Assurance, Oriental Insurance, United India Insurance, and National Insurance are reportedly absorbing the ITC loss rather than reducing agent commissions.
Private Insurers Struggle to Absorb Costs
Private insurers face tighter IRDAI Expense of Management (EoM) caps and investor scrutiny, limiting their ability to absorb additional expenses. The removal of ITC has increased operating costs by 2-3% of premiums, as insurers can no longer claim tax credits on rent, technology, and commissions, according to a senior executive at a leading life insurance company.
From October 1, 2025, several private insurers, including Tata AIG, Aditya Birla Health Insurance (ABHI), Niva Bupa, Care Health and ICICI Lombard will implement revised commission structures making payouts inclusive of 18% GST, meaning distributors will now bear the tax cost.
The change follows the GST Council's exemption of premiums on individual life, health, and accident policies from September 22, 2025. While customers benefit from tax relief on premiums, insurers can no longer claim ITC, impacting profitability and expense ratios.
"As insurance companies are no longer eligible to claim ITC, costs increase, impacting profitability and expense ratios," Tata AIG said in a notice to partners. ABHI and Care Health Insurance also confirmed that GST costs on commissions would now be borne by agents, while other expenses like rent and technology would be absorbed by the company.
Industry Outlook
The shift is expected to spark discussions between agents, industry associations, and regulators, as small and independent distributors grapple with reduced earnings. Analysts suggest that without a recalibrated GST framework, distribution efficiency and access to insurance in rural markets could be at risk.
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