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GST on Insurance Commission and Insurance Agent Services: Understanding Reverse Charge Mechanism (RCM)

Introduction

The Goods and Services Tax (GST) is a comprehensive indirect tax that applies to the supply of goods and services across India. Among the wide range of services covered under GST are those offered by insurance agents, who play a key role in selling and promoting insurance products for various insurance companies.

But here's the key point: even though insurance agent services are taxable under GST, individual agents are not required to pay GST themselves. Instead, the insurance company is liable to pay GST under the Reverse Charge Mechanism (RCM).

This article explores in detail:

• What insurance agent services are
• How GST applies to commission income
• The concept of Reverse Charge in this context
• The difference between insurance agents and brokers
• When RCM does and doesn’t apply

Let’s begin by understanding who an insurance agent is.

Who is an Insurance Agent?

As per Section 2(10) of the Insurance Act, 1938:

“Insurance Agent” means a person who is appointed under Section 42 of the Act and receives or agrees to receive payment by way of commission or remuneration for soliciting or procuring insurance business. This includes business related to the continuance, renewal, or revival of insurance policies.

In simple terms, an insurance agent is someone who sells insurance policies and gets paid a commission for bringing in new policyholders or renewing existing ones.

GST on Insurance Agent Commission

Under the GST law, all commission-based services are considered as a supply of service, and hence are taxable.

So, when an insurance agent gets a commission from an insurance company (like LIC, ICICI Prudential, etc.), it is considered as a taxable supply under GST.

However, there is a special treatment for this type of service — it is covered under the Reverse Charge Mechanism (RCM).

What is Reverse Charge Mechanism (RCM)?

Under normal circumstances, the supplier of goods or services is responsible for collecting and paying GST to the government. But under RCM, this responsibility shifts to the recipient of the service.

In the case of insurance agents, the insurance company is the recipient of services (from the agent), so they are required to pay GST, not the agent.

This mechanism is designed to ease the compliance burden on small individuals like agents, who may not have the resources to deal with GST filings.

Legal Reference: GST Law and RCM on Insurance Agent Services

Under Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the following service is notified under RCM:

“Services provided by an insurance agent to any person carrying on insurance business shall be under reverse charge. The recipient of the service (i.e., the insurance company) is liable to pay GST.”

This means:

• Insurance agents do not charge GST on their invoices.
• Insurance companies pay GST at 18% on the commission paid to the agents under RCM.
• Insurance agents are not required to register under GST if they only earn commission income from insurance companies.

Example to Understand

Let’s say:

• Mr. A is an insurance agent who sells life insurance policies for XYZ Insurance Ltd.
• He receives a commission of ₹50,000 in a month.
• Mr. A is not registered under GST.
• Under RCM, XYZ Insurance Ltd. will pay 18% GST on ₹50,000 = ₹9,000 and deposit it with the government.

Mr. A keeps his full ₹50,000 commission — he does not have to pay or charge GST.

Are All Services by Insurance Agents Covered Under RCM?

This is an important question.

The reverse charge entry covers services provided as an insurance agent — meaning, those directly related to soliciting or procuring insurance business, including policy renewals and follow-ups.

However, not all services provided by an insurance agent are covered under RCM.

Example:

Let’s say an insurance agent:

• Also rents out an office space to the insurance company.
• Or sells advertising services to the insurer.
• Or works part-time as a consultant for digital marketing.

Such services are not connected to insurance agency work.

In these cases, RCM does not apply. The agent will be treated as a regular service provider, and may be liable to register and pay GST if their total turnover exceeds the threshold limit (₹20 lakh or ₹10 lakh for special category states).

Insurance Agent vs Insurance Broker – What’s the Difference?

It is important to distinguish between an insurance agent and an insurance broker, as GST treatment differs.

So, only insurance agents are covered under Reverse Charge. Brokers, since they act independently and offer a variety of products, are not covered under RCM and must register under GST and pay tax normally if applicable.

GST Registration Requirement for Insurance Agents

Most insurance agents are small, individual service providers, often earning below the threshold limits.

As per Section 23(2) of the CGST Act read with Notification No. 5/2017, persons who are engaged in only reverse charge-based supplies are exempt from GST registration.

So if an insurance agent:

• Only earns commission from insurance companies, and
• Is not providing any other taxable service

Then they are not required to register under GST.

Key Benefits of RCM for Agents

• No need to register under GST.
• No requirement to file monthly returns.
• No compliance with e-invoicing or GST audits.
• The insurance company handles all tax liability.

What Insurance Companies Must Do

Insurance companies that pay commission to agents must:

• Calculate 18% GST on total commission paid.
• Pay the tax under RCM through Form GSTR-3B.
• Issue self-invoices for RCM payments.
• Claim Input Tax Credit (ITC), if eligible, on RCM payments.

This ensures that even though the tax is not collected from the agent, the government still receives the applicable GST.

Conclusion

GST on insurance agent services is a classic example of how the Reverse Charge Mechanism (RCM) is used to simplify compliance for small service providers. While insurance commission is a taxable supply, the agent is not burdened with GST compliance. Instead, the insurance company — being an organized, registered entity — takes responsibility for paying the tax.

However, it is important for agents and insurers alike to understand which services fall under RCM and which do not, and to distinguish clearly between insurance agents and brokers.

This simple framework helps maintain smooth compliance and avoids potential tax disputes.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.