Rate of service tax on insurance commission

[OM PRAKASH]

Is an insurer correct in deducting 6.18% service tax from insurance commission paid to its Agents.

[Surender Gupta]

Service Tax liability in case insurance commission is on insurance companies. Had it been the liability of the agent, agent would have charged Rs. 100 + ST. But, now agent is charging only Rs. 100/-. Therefore, insurance companies should not deduct the amount of service tax from the commission payable to agents. But, it in this case provisions of service tax act would not help. But, the terms and conditions of mutual contract / agreement would prevail.

Service provided by agents to the Insuarnce companies are liable for service tax and for ease of collection, insurance companies are required to pay. Commission payable to agents are cum ST and therefore deduction of ST by insurance companies is correct. Agents should request for hiking of their commission or should protest as ST paid by the insurance companies is available to the companies as CENVAT credit on input service.

AI Summary

Service tax on insurance commission: collection treated as insurer's obligation, so insurers may deduct from agent commissions.
Whether insurers may deduct statutory levy from agent commission turns on allocation and collection of service tax liability. One view sees the liability with insurers but says contractual terms govern whether insurers may withhold tax. The contrary view treats agent commissions as cum service tax and allows insurers to deduct tax at source, while insurers may claim cenvat credit on input services, prompting agents to seek higher commission or protest.