Commission Accounting for Indian Brokers Under the IRDAI Expenses of Management Regulations 2024

The IRDAI (Payment of Commission, Expenses of Management of Insurers and Insurance Intermediaries) Regulations, 2024, notified on 26 March 2024 and effective from 1 April 2024, reorganised the basis on which insurer expenses are governed, including commission paid to intermediaries. The Regulations replaced the earlier separate frameworks for commission caps and EoM caps with a unified expense-and-commission framework, with insurer-level caps replacing line-level caps for most non-life lines.

For brokers, the practical consequences are threefold. First, brokerage rates are now negotiable within insurer-level expense envelopes rather than fixed by IRDAI for each line. This creates flexibility but also creates accounting complexity, because the same product line can carry different brokerage rates depending on the insurer, the placement, and the underwriting period. Second, the audit trail expected by IRDAI inspections has expanded: brokers are now expected to document not only the brokerage received but the contractual basis on which it was determined, the line-by-line allocation within composite placements, and the consistency of treatment across similar placements. Third, the EoM regulation interplay with the Insurance Act, 1938 brokerage limits has produced edge cases for hybrid placements where part of the consideration is brokerage and part is fee for services rendered.

Brokers operating in the post-2024 regime cannot treat commission accounting as a back-office bookkeeping exercise. It is now an integrated component of regulatory compliance, requiring policy-level documentation, structured revenue-recognition methodology, and audit-defensible treatment of trail and contingent commission elements.

This post sets out a working framework for commission accounting under the EoM Regulations 2024, drawing on the experience of Indian commercial broker firms that have completed at least one full financial year under the new regime, and flagging the areas where IRDAI inspections have produced findings during 2025.

Boards and risk committees of broker firms should treat the post-2024 commission accounting environment as a priority governance topic. The regulatory framework has moved from a prescriptive cap regime to a principles-based envelope regime, and principles-based regimes reward firms with disciplined internal documentation and consistent application, while exposing firms with informal or inconsistent practices to inspection findings and accounting disputes. Broker firms that invest early in commission accounting discipline are positioned to avoid the disruption that retrospective remediation imposes on firms that delay the transition.

Brokerage revenue recognition is governed by the interaction of three frameworks: the Indian Accounting Standards (Ind AS 115) on revenue from contracts with customers, the IRDAI (Insurance Brokers) Regulations, 2018 as amended, and the EoM Regulations 2024 with their specific commission-payment provisions. Brokers should follow these steps to determine the correct recognition timing for each placement:

1. Identify the performance obligation. For a standard placement, the broker's principal performance obligation is to procure cover and effect placement on behalf of the policyholder. The obligation is substantially performed when the policy is placed, the insurer accepts the risk, and the policy document is issued.
2. Determine satisfaction at a point in time or over time. For most commercial placements, the performance obligation is satisfied at a point in time, specifically at policy inception. This means the broker can recognise the full brokerage on the inception date, subject to two important exceptions described below.
3. Apply the trail-commission exception. Where the brokerage agreement includes a trail or renewal-commission component (for example, brokerage paid in instalments over the policy period or contingent on renewal), revenue recognition for that component is deferred to the point at which the underlying contingency is resolved or the related performance is delivered.
4. Apply the cancellation-and-refund exception. Where policies have a meaningful cancellation rate and refund obligation, brokers may need to defer a portion of the recognised brokerage to provide for expected refunds, following the variable-consideration principles in Ind AS 115.

For mid-market and large commercial placements, where cancellation rates are typically low and trail-commission components are rare, the practical effect is that brokerage is recognised in full at policy inception. For retail-line aggregator-style placements, where cancellation and refund rates are higher, more granular deferral may be required.

The IRDAI inspections during 2024-2026 have not yet produced widespread findings against revenue-recognition timing, but the audit committees of brokerage firms with statutory audits have begun examining the methodology more carefully, particularly for firms recognising large unbilled receivables at year-end. Brokers should document their revenue-recognition policy in a board-approved document, ensure consistency of application across financial years, and retain calculation worksheets for individual placements that fall under any of the exception scenarios.

A related accounting decision is whether to record brokerage gross of GST or net of GST in the revenue line. Practice varies across Indian broker firms; the Ind AS treatment generally favours net-of-GST presentation, with GST treated as a balance-sheet flow rather than a revenue item, but some firms continue to present gross figures. Whichever treatment is adopted should be applied consistently and disclosed clearly in financial statements.

Brokers should also address the policy treatment of placement-related expenses incurred before commission revenue is recognised. Typical pre-recognition expenses include risk-engineering survey costs (where the broker arranges and pays for a survey to support a placement), specialist advisory fees, and travel-and-meeting costs incurred during the placement process. Under Ind AS 115, costs to obtain a contract that are incremental and recoverable should be capitalised and amortised over the period in which the related revenue is recognised. For most placements, this means survey and advisory costs incurred in the run-up to a placement should be capitalised if material and amortised over the policy period. Brokers should establish a materiality threshold (typically INR 1-2 lakh per placement) below which expensing as incurred is acceptable, and above which capitalisation is the standard treatment.

The EoM Regulations 2024 set insurer-level caps on total expenses (including commission) as a percentage of gross premium written. The Regulations replaced the earlier line-by-line commission cap structure with insurer-discretion to allocate within the overall expense envelope, subject to the Insurance Act, 1938 statutory cap on brokerage payable on certain lines.

For brokers, the practical implications are:

1. Brokerage rates within insurer envelopes are now negotiable. The same line of business can carry different brokerage rates across insurers depending on each insurer's expense profile and strategic priorities. Brokers should not assume a uniform market rate; they should benchmark across insurers per placement.
2. The statutory Act cap on brokerage remains binding. Section 40 of the Insurance Act, 1938, as amended, prescribes maximum brokerage payable for specified lines. EoM Regulations 2024 cannot override this statutory cap. Brokers receiving rates close to the statutory ceiling should verify compliance documentation.
3. Hybrid arrangements (brokerage plus fee for services) attract scrutiny. Where the broker provides advisory services for which a separate fee is charged in addition to brokerage, IRDAI inspections probe whether the combined consideration exceeds applicable caps and whether the fee genuinely corresponds to services beyond placement.
4. Inter-insurer rate variation within similar placements should be documented. When the same client's portfolio places different policies with different insurers at different rates, brokers should document why the rate variation exists and the negotiation basis.

The Insurance Brokers Association of India and several large insurers have published interpretative notes on the EoM Regulations during 2024-2026, but the IRDAI itself has not issued exhaustive FAQ guidance. Brokers facing edge cases should seek written confirmation from the insurer rather than rely on industry interpretation. A common edge-case scenario is co-insurance placements where multiple insurers share a single risk; brokerage allocation across the participating insurers, and the EoM treatment by each, require explicit contractual documentation. Another edge case arises in mid-term policy revisions where the sum insured is increased substantially; the additional brokerage on the incremental premium must be allocated to the same insurer envelope, and the EoM compliance must be re-confirmed for the combined annualised brokerage if the revised total approaches statutory thresholds.

Risk committees should review the firm's brokerage-rate distribution at least annually, identifying outlier placements where rates are unusually high or low, examining the contractual and competitive basis for the variation, and confirming that the firm's overall commission profile is consistent with peer firms in the same client and product segments.

Trail commission, also called renewal commission, is brokerage paid over multiple policy periods or in instalments contingent on continued policy performance. Trail commission is less common in Indian commercial insurance than in retail life and health, but it does appear in specific structures: long-tail liability placements, multi-year fronting arrangements, and certain reinsurance treaty placements through composite brokers.

The audit trail required for trail commission has three components:

1. Contractual basis at inception. The trail-commission arrangement must be documented in the placement contract or in a separate commission letter between the broker and the insurer. The document should specify the trail period, the percentage payable in each period, the trigger conditions, and the calculation methodology.
2. Recognition methodology. The broker's accounting policy must specify how trail commission is recognised: deferred at inception with periodic release, recognised at each period as it accrues, or fully recognised at inception with a corresponding receivable. The choice depends on the contractual structure and on Ind AS 115 application. Most commercial trail arrangements are appropriately accounted as recognised over the trail period, because the broker's performance obligation continues through the period (typically renewal facilitation, ongoing advice, or policyholder support).
3. Reconciliation discipline. Each period's trail-commission accrual must be reconciled against the actual commission received from the insurer, with variance explanations for any difference. Common variance sources include premium cancellations during the trail period (which can reduce or eliminate the trail payable), insurer disputes about renewal facilitation, and changes in the insurer's expense allocation methodology.

For trail commission contingent on renewal, the appropriate accounting treatment is generally to recognise revenue only upon renewal (the contingency resolution point), unless the broker has historical experience that supports recognising a probability-weighted accrual. The probability-weighted approach is supported by Ind AS 115 but requires the broker to maintain detailed historical data on trail-commission realisation rates, which most Indian brokers do not have at the granularity required.

Brokers should advise clients to be aware of trail-commission arrangements that affect them indirectly, particularly when the broker's ongoing remuneration is tied to renewal with a specific insurer. The arrangement may create a misalignment between the client's interest (best terms each year) and the broker's interest (continued renewal with the trail-paying insurer). Disclosure of trail-commission arrangements to clients in the placement documentation is consistent with the broker's duty of fair dealing under the IRDAI (Insurance Brokers) Regulations, 2018.

Risk committees should review trail-commission balances at least annually, examining the realisation rate, identifying arrangements that have produced material write-offs, and considering whether the firm's trail-commission practices align with client-best-interest principles.

Brokerage attracts Goods and Services Tax (GST) at the prevailing rate of 18% on the brokerage value, with specific treatments for cross-border placements and reverse-charge scenarios. The GST framework interacts with the EoM Regulations 2024 in subtle ways that brokers should manage explicitly.

Key GST positioning points are:

1. Place of supply. For broker services rendered to an Indian insured for a policy issued in India, the place of supply is the location of the insured (B2B service to a registered recipient). For services rendered to overseas clients, the place of supply rules differ and may permit zero-rated treatment as export of services, subject to documentation requirements.
2. Cross-border reinsurance placements. Brokerage on placements with foreign reinsurers can attract GST under reverse charge for the Indian cedant or insurer. The broker's responsibility is to ensure the brokerage invoice clearly indicates the GST treatment and to provide supporting documentation for the cedant's input-credit claim.
3. Input credit on broker expenses. GST paid on broker-firm expenses (technology, professional services, travel, office rent) is generally creditable against the GST output liability on brokerage revenue, subject to the standard input-credit rules. Brokers should maintain rigorous input-credit reconciliation, with monthly review of GSTR-2A versus claimed input credit.
4. GST on hybrid fee-and-brokerage arrangements. Where the broker charges a separate advisory fee in addition to brokerage, both components attract GST at 18%. The invoicing structure should clearly separate brokerage and fee components, with each line item carrying its own GST.

The GST treatment of brokerage on insurance is one of the more litigated areas in indirect tax, with several rulings from advance ruling authorities clarifying specific edge cases. Broker firms should retain a tax advisor for periodic review of their GST positioning, particularly for cross-border placements and for hybrid fee structures.

A recurring practical issue is the alignment of GST and EoM treatment. EoM caps on insurers are typically computed on a gross-of-GST basis or net-of-GST basis depending on the insurer's accounting policy; the broker's brokerage receipt should match the insurer's expense recording on the same basis. Mismatches between broker and insurer accounting can create reconciliation issues at audit and can attract IRDAI inspection attention if they suggest manipulation of expense ratios.

Brokers should advise clients to specifically request invoices that clearly disclose GST, particularly when the client is itself a GST-registered entity entitled to input credit. For commercial clients, the GST on insurance premium is generally creditable against the client's output GST liability, making accurate invoicing a meaningful commercial point.

Audit-defensible commission accounting starts with placement-level documentation discipline. The following document set should be retained in the broker's placement file for every placement, irrespective of size:

1. Proposal acceptance evidence. Confirmation from the insurer that the proposal was accepted, with date and reference number.
2. Brokerage rate confirmation. Written confirmation of the brokerage rate from the insurer, either in the placement quotation, a separate commission letter, or the policy schedule. Verbal confirmations are not acceptable.
3. EoM compliance confirmation. For placements where the brokerage rate approaches the statutory cap or where the insurer's EoM allocation is uncertain, a written confirmation from the insurer that the rate complies with the EoM Regulations 2024.
4. Trail or contingent commission documentation. Where any trail, renewal, or contingent commission applies, the contractual terms, trigger conditions, and calculation methodology.
5. Invoice and GST evidence. The broker's commission invoice to the insurer, the insurer's payment evidence, and the GST treatment applied.
6. Reconciliation evidence. Periodic reconciliation between the broker's recognised commission and the insurer's actual payment, with variance explanations.

For large commercial placements with annual premium above INR 50 lakh, additional documentation is appropriate:

• record of the negotiation process leading to the brokerage rate
• comparison of the rate against other competing insurer quotations
• the broker's internal rate-justification memo if the rate departs materially from firm-standard rates for the line

This documentation produces three benefits. First, it supports the firm's revenue-recognition position at year-end audit. Second, it supports IRDAI inspection responses on commission cap compliance. Third, it supports the broker's defence in any dispute with the insurer or with the client regarding the brokerage arrangement.

Risk committees should establish a placement-file audit programme, sampling a random selection of placements each quarter and verifying that the documentation standard has been met. Findings should be tracked to closure and discussed at risk committee or audit committee level.

Indian commercial insurance increasingly involves co-broking arrangements (two or more brokers jointly handling a single client) and sub-broking arrangements (a primary broker engaging another broker for specialist input or for geographic coverage). The EoM Regulations 2024 do not specifically address these arrangements, leaving brokers to apply general principles supported by the IRDAI (Insurance Brokers) Regulations, 2018 as amended.

The accounting and compliance considerations include:

1. Sharing methodology must be documented. The split of brokerage between participating brokers must be documented in a written agreement, with clear performance attribution to each broker. Generic sharing percentages without performance basis attract regulatory scrutiny.
2. One broker is typically the broker of record. Indian regulatory practice generally identifies a single broker as the broker of record for IRDAI registration and policyholder relationship purposes. Other participating brokers operate under contractual arrangements with the broker of record. The broker of record is typically the entity receiving the brokerage from the insurer and onward-distributing to participating brokers.
3. GST treatment of inter-broker payments. Payments between brokers attract GST at 18%. Each participating broker must invoice the broker of record for its share, and the broker of record claims input credit against the GST output on the brokerage received from the insurer.
4. Trail and contingent commission allocation. Where trail or contingent commission applies, the allocation of these components between participating brokers must be specifically addressed in the inter-broker agreement, because the contingency-resolution timing affects each broker's revenue recognition.
5. EoM compliance attribution. The insurer's EoM compliance is computed at the insurer level, but the brokerage paid is attributed to the broker of record. The insurer's records may not capture the secondary brokers receiving distributions. Brokers should ensure that the chain of commission flow is documented in a manner that supports both insurer-side EoM compliance and broker-side income recognition.

For brokers engaged in sub-broking with foreign brokers (Indian broker as broker of record for an Indian client with reinsurance placement through a London broker), the FEMA (Insurance Premium Remittances) Regulations add a further layer of compliance. The cross-border payment must comply with FEMA documentation requirements, and the cross-border brokerage flow must be reported in the broker's foreign-exchange transaction records.

Brokers should advise client risk committees on co-broking arrangements transparently, particularly when the sharing percentages, the performance attribution, or the trail-commission arrangements could affect the broker-client alignment of interest.

Commission accounting in the post-EoM-2024 environment is a board-level governance topic, not merely a finance-team operational topic. Boards and risk committees of broker firms should demand the following from the operations and finance leadership:

1. A documented commission accounting policy. Reviewed annually, approved by the board, covering revenue recognition, trail-commission treatment, GST treatment, co-broking arrangements, and exceptions handling.
2. A quarterly commission audit. Internal audit sampling of placements per quarter, testing the documentation standard, revenue-recognition treatment, GST treatment, and EoM compliance.
3. An annual external audit attestation. Statutory auditor confirmation that the commission accounting policy has been applied consistently and that the recognised commission revenue is supported by adequate documentation and reconciles to insurer payments.
4. A risk register entry for commission compliance. Tracked at risk committee with severity ratings and remediation timelines for any findings.
5. A management certification. Quarterly attestation from the CFO and the chief compliance officer that no material commission accounting issues have arisen and that any identified issues are tracked to remediation.
6. A peer-firm benchmark. Annual comparison of the firm's commission accounting practices against peer firms of similar scale and product mix, identifying any practices where the firm is materially out of line and considering whether the deviation is defensible or should be corrected. The peer benchmark can be informed by Insurance Brokers Association of India forums, statutory auditor commentary, and industry advisory commentary published through 2024-2026.

The IRDAI inspections of 2024-2026 have produced findings against brokers who failed to maintain placement-level commission documentation, who recognised trail commission without contractual support, and who did not reconcile broker-side commission records with insurer-side commission payments. None of these findings is conceptually difficult to avoid; all of them result from operational discipline gaps that boards and risk committees should not tolerate.

Brokers should advise their boards to treat commission accounting as a continuing governance topic, with quarterly visibility at the audit committee or risk committee. Treating it as a once-a-year exercise during statutory audit is no longer adequate given the regulatory expectations established by the EoM Regulations 2024 and the inspection patterns observed during 2024-2026. Risk committees should also satisfy themselves that the commission accounting policy is harmonised with the firm's client-best-interest obligations, the conduct-risk framework, and the broader compliance governance of the firm.

For brokers that have not yet brought commission accounting under formal board-level governance, the practical first step is to commission an external diagnostic review of the current commission accounting practice against the EoM Regulations 2024 and the documentation standards described in this post. The diagnostic typically takes 6-8 weeks for a mid-market broker and produces a remediation roadmap that the board can sponsor over the following 6-12 months.

The diagnostic should cover at minimum: a sample placement-file audit testing the documentation standard, a review of the firm's commission accounting policy against Ind AS 115 and the EoM Regulations 2024, a GST positioning review including reverse-charge and cross-border treatments, a review of trail and contingent commission arrangements, and a review of co-broking arrangements and sub-broking flows. The output is typically a severity-classified findings list, a remediation timeline, and an estimate of the operational changes required to bring the firm to inspection-ready status.

Brokers should advise that the diagnostic is not a one-time exercise but the foundation for an ongoing governance rhythm. Once the initial remediation is complete, the quarterly internal audit and annual external attestation described earlier in this post become the standing operating discipline. This approach reduces the cost of inspection response, supports the firm's representation to clients and counterparties, and creates a defensible position for the broker firm's leadership in any future regulatory or judicial inquiry.