Recipient :- Any person carrying on insurance business located in a taxable territory.
Another specific service notified under the Reverse Charge Mechanism (RCM) is the service provided by an insurance agent to a person carrying on insurance business. This is covered under Entry No. 7 of Notification No. 13/ 2017-Central Tax (Rate), issued under Section 9(3) of the CGST Act, 2017. As per this entry, when an insurance agent provides services to an insurance company or any person engaged in the insurance business, the tax liability under GST is not on the agent but on the insurance company, i.e., the recipient of service. This mechanism has been adopted primarily to relieve small and individual insurance agents from the burden of GST compliance, especially those who do not cross the threshold for mandatory registration under GST.
The service typically involves soliciting or procuring insurance business on behalf of the insurance company. Insurance agents are generally individuals or proprietary concerns acting as intermediaries and earning commission income. In this arrangement, the insurance company is liable to pay GST at 18% under RCM, and the insurance agent is not required to obtain GST registration, provided their entire supply of services falls under this entry and they do not cross the aggregate turnover limit for compulsory registration under Section 22 of the CGST Act.
It is important to understand that the entry covers only those services that are provided by the agent in the capacity of an insurance agent, i.e., services directly related to insurance solicitation, canvassing, or policy servicing on behalf of the insurance company. If the same agent provides any other service unrelated to insurance intermediation-for instance, renting immovable property or providing consultancy-such services would not fall within the ambit of this RCM entry. In such cases, the general provisions of GST and forward charge mechanism would apply, subject to registration requirements and threshold exemptions.
To illustrate, consider the case where Mr. A, an individual insurance agent, receives Rs. 50,000 as commission from ABC Life Insurance Ltd. for policies procured during the month. Since Mr. A is providing services as an insurance agent and the recipient is an insurance company, GST at 18% will be paid by ABC Life Insurance Ltd. under RCM, and Mr. A is not liable to charge GST or register, unless he has other taxable supplies exceeding the threshold. However, if Mr. A also leases out his office premises to the same insurance company and earns monthly rental income of Rs. 25,000, such rental service is not covered under this RCM entry. If his aggregate turnover (including rental income) exceeds Rs. 20 lakh, he will be liable to register and pay GST under forward charge on such rental service.
This interpretation is consistent with the broader structure of RCM entries under Notification No. 13/2017, where the focus is on services rendered in a specific notified capacity. The phrase "services supplied by an insurance agent to a person carrying on insurance business" implies a limited scope and must be construed to include only those services where the principal-agent relationship for insurance business is clearly established.
Hence, in conclusion, RCM applies only to services provided by insurance agents to insurance companies in their representative capacity, and not to all types of supplies made by such persons. The liability to pay GST in such cases rests entirely with the insurance company receiving the service, and insurance agents remain outside the tax net to the extent their services fall within the scope of this RCM entry.
An explanation has been inserted vide notification no 3/2018-CTR dated 25th January, 2018 that "insurance agent" shall have the same meaning as assigned to it in clause (10) of Section 2 of the Insurance Act, 1938.