Insurance GST 2025: Agents Warn Exemption Could Undermine Distribution

The government’s GST 2.0 reform exempted health and life insurance premiums from GST to make insurance more affordable. While well-intentioned, this move has raised concerns among insurance agents and brokers, who play a vital role in reaching customers across India.

GIAFI Raises Alarm
Prashant Mhatre, All India President of the General Insurance Agents Federation Integrated (GIAFI), warned that the exemption could weaken agents, brokers, and advisors. These professionals are crucial for explaining insurance products, building trust, and expanding access in tier 2 and tier 3 cities.

Loss of Input Tax Credit (ITC)
With GST removed from premiums, distributors can no longer claim Input Tax Credit on commissions, rewards, or business expenses. “This directly cuts into working capital,” Mhatre said, highlighting the financial strain on small and independent operators.

Commission Pressures
Distributors are now expected to pay GST out of their commissions, potentially reducing payouts by around 18%, according to Mhatre. This has a direct impact on agents’ take-home earnings and motivation.

Impact on Market Access
GIAFI cautioned that reduced earnings could limit insurance penetration, particularly in smaller towns and rural areas, undermining the government’s goal of “Insurance for All by 2047.”

Call for Unity
Mhatre urged the insurance distribution community to unite across life, general, and health insurance, analyze the full impact, and present concerns to IRDAI and the Finance Ministry.

Fear of Precedent
Industry insiders warned that insurers could use such reforms to manage profitability by cutting distribution costs instead of improving efficiency. GIAFI called for a balanced approach: lower GST benefits for consumers without undermining agents’ role.

The debate now challenges regulators and insurers to protect distributors while ensuring affordability for policyholders.