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Insurance agents & associations likely to take up GST issue with IRDAI, Finance Ministry

  //business-finance.news-articles.net/content/202 .. ke-up-gst-issue-with-irdai-finance-ministry.html
  Published in Business and Finance on Monday, October 6th 2025 at 7:26 GMT by moneycontrol.com
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Insurance Agents Association to Take GST Issue to IRDAI and Finance Ministry

The insurance sector in India is bracing for a new wave of discussions around the Goods and Services Tax (GST) that is expected to shape the industry’s growth trajectory. A recent MoneyControl piece, “Insurance Agents Associations Likely to Take Up GST Issue With IRDAI Finance Ministry,” outlines the concerns of the Insurance Agents Association of India (IAAI) and other key bodies, their planned engagement with the Insurance Regulatory and Development Authority (IRDAI) and the Finance Ministry, and the potential ramifications for insurers, brokers and policyholders.

The Background: GST and Insurance

GST was introduced in India in July 2017 to replace a maze of indirect taxes such as the central excise duty, VAT, and service tax. The tax was structured into nine different rates – 5%, 12%, 18% and 28% – with a special 12% slab for insurance services. While the 12% GST is lower than the standard 18% rate applied to many other services, the industry has repeatedly flagged a series of practical issues that still hamper the seamless application of the tax.

Under the GST regime, insurers pay tax on the premiums they receive, while brokers and agents receive commissions that are also subject to GST. The cascading effect – where tax is levied on tax‑inclusive amounts – raises the cost of insurance products, erodes margins for intermediaries and ultimately adds a burden to consumers. Compounding the issue is a perceived lack of clarity around the tax treatment of various premium components such as riders, tax‑free benefits and re‑insurance costs.

Why the Insurance Agents Association Is Reacting

The IAAI, which represents more than 20,000 insurance agents across the country, has been a vocal advocate for clearer guidelines on the application of GST. According to the MoneyControl article, the association’s leadership stated that “the current GST framework does not adequately address the unique characteristics of the insurance business.” The association’s concerns focus on three major pillars:

1. High GST Rate on Premiums
   While the 12% rate is nominally lower than the standard rate, the industry argues that it is still too high relative to the life‑insurance sector’s historical tax rates. Insurance agents fear that this cost will deter potential policyholders, especially in a price‑sensitive market.

2. Double Taxation on Commissions
   Under GST, commission income is taxed as a service, while insurers themselves are taxed on the premium. This “double taxation” erodes the net income of agents and brokers and reduces their willingness to promote certain products, thereby narrowing the distribution network.

3. Compliance Complexity
   The complex registration, invoicing and tax filing requirements create administrative overhead for agents who operate with limited resources. The article quotes an agent who described the process as “time‑consuming, costly and a barrier to entry for new entrants.”

Planned Engagement With IRDAI and Finance Ministry

In a proactive move, the IAAI intends to approach the IRDAI – the regulator that oversees India’s insurance market – and the Finance Ministry to seek a more streamlined GST framework. The MoneyControl article highlights that the association will submit a formal memorandum outlining its concerns and suggestions. The main points of the memorandum include:

• A Request for a Dedicated GST Council Review
  The association wants the GST Council to include representatives from the insurance sector, arguing that this will provide a more nuanced understanding of the industry’s tax challenges.

• Proposed GST Rate Adjustments
  While not advocating for a complete repeal of the 12% GST, the IAAI proposes a tiered system that considers the nature of the policy (e.g., term vs. whole life, health vs. general insurance) and allows for a lower rate or an exemption on premium components that are inherently tax‑free.

• Simplified Compliance Mechanisms
  Suggestions include a single GST registration for all insurance-related entities, a reduction in filing frequency, and an online platform that would handle tax collection for commissions automatically.

• Clarification on Commission Taxation
  The association seeks a definitive ruling that would treat commissions as part of the gross premium for tax purposes, thereby eliminating double taxation.

IRDAI’s Response So Far

The IRDAI, which issued a draft GST guideline for insurers in 2019, has been monitoring the sector’s concerns closely. The MoneyControl article notes that the IRDAI’s latest guidance reiterates that all insurance services fall under the 12% GST bracket. However, the regulator has acknowledged the “implementation challenges” faced by intermediaries. The association’s plan to engage the IRDAI is therefore not without precedent; the regulator has previously opened consultations with the insurance agents to refine its policies.

The IRDAI’s official response to the IAAI’s memorandum is pending, but the regulator has indicated a willingness to collaborate on a “tax‑friendly environment” for the insurance market. This collaboration is seen as crucial for sustaining the growth momentum that the sector has experienced over the last decade.

Finance Ministry’s Role

The Finance Ministry is responsible for overall tax policy, including the GST Council’s decisions. The MoneyControl article notes that the Ministry has historically been receptive to stakeholder inputs. In an upcoming budget session, the Ministry is expected to review the insurance sector’s GST concerns. A positive outcome could mean a revised GST schedule or targeted tax relief that would benefit both insurers and intermediaries.

Potential Implications

If the insurance agents’ concerns are addressed, several ripple effects could ensue:

• Lower Distribution Costs
  A reduction in the GST burden on commissions would allow agents to offer competitive rates and broaden the distribution network, especially in Tier‑2 and Tier‑3 cities.

• Higher Consumer Affordability
  Reduced premium costs due to a lower GST rate or better tax clarity could increase policy penetration among middle‑income households.

• Enhanced Compliance Efficiency
  Simplified GST procedures would free up agents’ time and resources, allowing them to focus on sales and customer service rather than paperwork.

• Growth for InsurTech and Digital Platforms
  A clearer tax regime would also benefit newer players who rely on digital brokerage platforms, encouraging further innovation in the sector.

Conclusion

The MoneyControl article underscores the urgency with which the insurance agents’ associations want to resolve the GST issue. By directly addressing the IRDAI and Finance Ministry, they aim to achieve a tax framework that is both revenue‑generating for the government and growth‑friendly for the insurance industry. While the final outcome remains uncertain, the upcoming engagement is poised to set a new precedent for how tax policy can evolve in response to industry needs.

Follow‑up Links for Further Reading

1. Insurance Regulatory and Development Authority (IRDAI) – https://www.irdai.gov.in
   Provides the latest GST guidelines for insurers and a portal for filing.

2. Insurance Agents Association of India (IAAI) – https://www.iaai.in
   Offers insights into the association’s activities, policy positions, and upcoming events.

3. GST Council – India – https://www.gstcouncil.gov.in
   The body responsible for making decisions on GST rates and exemptions.

4. MoneyControl Article on GST and Insurance – https://www.moneycontrol.com/banking/insurance-agents-associations-likely-to-take-up-gst-issue-with-irdai-finance-ministry-article-13599534.html
   The primary source of this summary.

By staying informed about these developments, stakeholders can better navigate the evolving GST landscape and harness opportunities for sustainable growth in India’s insurance sector.