GST rejig: No input tax credit for insurers on brokerage, CBIC clarifies

The CBIC has clarified that taxes paid on inputs like brokerage and commission for individual life or health insurance policies cannot be claimed as ITC

As India enters a new Goods and Services Tax (GST) regime, the Central Board of Indirect Taxes and Customs (CBIC) has clarified that insurers cannot claim input tax credit (ITC) on services such as brokerage and commission.

 

Earlier this month, the GST Council approved new tax rates of 5 and 18 per cent for most goods, while classifying certain remaining items under the “sin” category, which will be taxed at 40 per cent. The new rates will take effect on September 22.

 

In a recently released clarification regarding the same, the CBIC stated, "At present, insurers are availing ITC on many inputs and input services such as commissions, brokerage and reinsurance, etc. Out of these input services, reinsurance services will be exempted. ITC of other inputs or input services is to be reversed because the output services will be exempted."

 

This means that taxes paid on inputs like brokerage and commission for individual life or health insurance policies cannot be claimed as ITC, adding to insurers’ costs. Some experts have also told Business Standard that these costs can also be passed on to the customer, eventually increasing the premiums.

 

 

Here are some of the other clarifications issued by CBIC:

Medicines won’t need relabelling 

On the pharma side, the National Pharmaceutical Pricing Authority (NPPA) has clarified that drugmakers will not be required to recall or re-label medicines already in the supply chain before September 22, 2025. Instead, companies must issue revised price lists to dealers, retailers, and state regulators to reflect GST-linked price changes.

 

Hotels & accommodation 

Hotel rooms priced at ₹7,500 or below per day must charge 5 per cent GST without ITC. There is no option to charge 18 per cent with ITC for these units.

 

Drones 

All types of unmanned aircraft will now attract a uniform 5 per cent GST rate. Earlier, personal-use drones were taxed at 28 per cent, drones with cameras at 18 per cent, and others at 5 per cent. 

 

Bricks 

The GST rate on sand lime bricks has been reduced from 12 per cent to 5 per cent. For all other bricks, the existing special composition scheme continues: 6 per cent without ITC or 12 per cent with ITC, with a lower threshold turnover of ₹20 lakh.

 

Beauty & wellness services 

Beauty and physical well-being services are subject to 5 per cent GST without ITC, which is mandatory, with no higher ITC-eligible option available.

 

Leasing and renting 

The majority of leasing or rental services without an operator are taxed at the same rate as applicable on supply of similar goods. For example, if cars are taxed at 18 per cent, then the rate of 18 per cent will be applicable for leasing or renting (without operator) of such cars or machines, the CBIC said.

 

However, in terms of services with an operator (like a driver), the businesses can choose between 5 per cent with limited ITC or 18 per cent with full ITC.