In response to our today’s article on GST, we received lot of queries through WhatsApp, email and phone calls seeking clarification on applicability of GST on insurance commission.
Remember that insurance commission is subject to GST from Re.1. There is no exemption or threshold limit like Rs.20 lakh in mutual funds for insurance agents.
Currently, insurance companies follow reverse charge mechanism (RCM) on commission of up to Rs.20 lakh i.e. they pay GST from your commission income along with TDS before disbursing the net commission. Such a practice differs with insurers.
While some companies follow RCM for commission of over Rs.20 lakh, a few companies disburse gross commission after deducting TDS to insurance agents. In this case, agents are liable to pay GST on commission on their own.
Let us take a simple example. Assume that you sold a policy with premium amount of Rs.100. Investors have to pay Rs.118 as premium including GST. Considering 15% commission, insurance companies will pay you Rs.15 if your gross commission income is less than Rs.20 lakh or Rs.17.70 (Rs.15+Rs.2.70) if your gross commission income exceeds Rs.20 lakh. (We did not factor in TDS for simplicity purpose).
In most cases, insurance agents will have to inform insurance companies about applicability of RCM. You can avail benefits of composition scheme or input credits if you receive gross commission including GST.
Coming back to the example, which we used in our previous article that how would GST be applicable on commission income of an MFD if he earns Rs.15 lakh on insurance policies net of TDS and Rs.10 lakh on mutual funds.
In this case, MFDs need to pay GST on income earned from mutual funds as he has already paid GST on insurance commission through his insurer.
In another example, if an individual MFD earns gross commission of Rs.22 lakh on insurance and Rs.18 lakh on mutual funds, he will have pay GST on entire income i.e. Rs.40 lakh. However, if his insurer has deducted GST on the commission, he will have to pay GST only on income earned on mutual funds.
Please note that Cafemutual has spoken to GST experts at consulting firms, compliance officials at AMCs and chartered accountants to write this report. We intend to clarify your doubts on GST. This does not tantamount to be a tax advice of any nature or a recommendation. Please take advice from a qualified tax advisor for your guidance.
