By G Naga Sridhar

Copyright thehindubusinessline

As they pass on the Goods and Services Tax (GST) benefit to policyholders, private life insurers appear to have shifted the burden of the GST waiver on their operational costs, at least partly, to insurance distributors.

“The decision was taken after thorough discussions among the industry members as the lack of input tax credit (ITC) in the new GST regime came into effect from September 22, 2025,’‘ the Chief Distribution Officer of a major private life insurance company told businessline on Friday.

The 18 per cent GST on individual life and health cover was removed by the Centre as part of GST rationalisation last month. On account of this, the insurers had lost the benefit of ITC and took a hit while passing the full benefit of GST reduction to the policyholders.

In this process, they could not claim ITC on GST they pay on expenses, including commissions, rent and software.

The decision to cut commission was taken in consultation with the Insurance Regulatory and Development Authority of India (IRDAI), it is learnt.

Adverse impact

The reduction of commission, which came into effect from October 1 for all types of distributors, including corporate agencies and individual agents, has been pegged at 18 per cent, while the adverse impact due to lack of ITC will be lower than 18 per cent.

“While all life insurers have agreed to an 18 per cent cut in commission to keep market dynamics stable for now, it is bound to change as insurers might prefer to move away from a uniform commission cut depending on their individual standing in business,’‘ said the head of the bancassurance channel in a public sector bank.

Life insurance commissions vary based on the policy type and provider. Broadly, it will be higher for first-year commission, while lower renewal commissions are offered in subsequent years of the policy.

Commission cut

The reduction in commission is not initiated by the market leader, the Life Insurance Corporation of India (LIC). “Last year, some minor re-adjustment of agents’ commission was made. As on date, there is no reduction of commission to agents,’‘ said an official.

“We are glad that LIC has not resorted to any cut as there are over 14 lakh agents who ensure social protection across the nook and corner of the country,’‘ LIC agent M Rama Rao said.

Published on October 3, 2025