Insurers Cannot Claim ITC on Brokerage: CBIC Issues Notification

Under the GST Reforms, the Government had introduced a GST dual slab System, with only two tax rates: 5% and 18% for many goods. The new GST rates are applicable from September 22, 2025. With the start of GST 2.0, the Central Board of Indirect Taxes and Customs (CBIC) has said that the insurers cannot claim input tax credit (ITC) on services such as brokerage and commission.

The CBIC recently released a notification where it mentioned that currently, the insurers are claiming ITC on many inputs and input services, including commissions, brokerage and reinsurance, etc. However, the CBIC explained that with the new GST Regime, only reinsurance services will remain exempt from GST, and ITC on all other inputs or services will have to be reversed because the output service will also be exempt from GST.

Therefore, the insurance companies can no longer claim ITC against the taxes paid on inputs such as brokerage and commission for life or health insurance policies. This will increase the company’s overall cost. Experts say that this can result in increasing the premiums, as the insurers will pass on these costs to the customers.

In the notification, CBIC also clarified other things related to the GST rate rationalisation. These are as follows:

• Hotels: The hotel rooms that are priced less than or equal to Rs 7,500 will attract 5% GST.

• Medicines: The National Pharmaceutical Pricing Authority (NPPA) has also made it clear that drugmakers do not need to re-label medicines that are already in the supply chain before September 22, 2025. They must give a list with the revised price to the dealers, retailers, and state regulators to show the GST price changes.

• Bricks: The sand-lime bricks will attract a GST rate of 5%, reduced from 12%. Meanwhile, the other bricks under the current special composition scheme will continue to be taxed at 6% without ITC or 12% without ITC, with a turnover limit of Rs 20 lakh.

• Drones: The unmanned aircraft will be taxed at a 5% GST rate. The personal-use drones were earlier taxed at 28%, while the ones with cameras are at 18%, and others at 5%.

• Lease and Rent: The lease and rent without an operator attract the same GST as applicable on the supply of the goods. So, if cars are taxed at 18%, then the same rate will be applicable for leasing or renting if there is no operator. But, if there is an operator, the business can either select the GST rate of 5% with limited ITC or 18% with full ITC.

• Beauty and wellness services: The Beauty and wellness services attract 5% GST without ITC, and no higher ITC eligible option is available.