The Indian government has introduced a significant change in the Goods and Services Tax (GST) on individual health and life insurance premiums, reducing it from 18% to 0% effective September 22, 2025. However, this change also means that insurance companies can no longer claim Input Tax Credit (ITC) on services such as brokerage and commission for individual health and life insurance. As a result, insurance companies are reducing commission payouts to distributors to absorb the loss of ITC benefit.
Several major insurance companies, including HDFC Ergo General Insurance, Tata AIG General Insurance, ICICI Lombard General Insurance, Aditya Birla Health Insurance, Niva Bupa Health, Star Health, and Care Health, have already cut commissions to distributors. The commission paid to distributors is now inclusive of 18% GST, effective October 1, 2025. This change is expected to impact the profitability and operating expenses of insurance companies.
The government’s intention behind this move is to make insurance policies more affordable for individuals. However, it has created pressure on insurance companies’ margins, as they have lost the benefit of ITC that they could earlier claim on their expenses. Insurance companies are now absorbing the ITC disallowance impact on non-commission costs to keep premiums affordable for customers.
The reduction in commission payouts to distributors may affect their earnings, but insurance companies are encouraging them to focus on selling more policies to increase their volumes and earnings. The new guidelines have created a challenging environment for insurance companies, and they are awaiting responses from relevant authorities to address their concerns. Meanwhile, insurance companies are revising their commission rates to align with the GST changes, and distributors can expect updated commission grids soon. Overall, the GST exemption on individual health and life insurance premiums has created a complex situation for insurance companies, distributors, and policyholders, with both positive and negative implications.