Transactions worth Rs 12,000 crore by insurers under taxman’s lens, CFO News, ETCFO


Transactions of more than ₹12,000 crore are under the scanner of the income-tax department that is probing several commission agents of insurance companies over alleged tax evasion, people in the know told ET.

These transactions were made by alleged shell companies that insurance companies allegedly used to pay much higher commissions to agents than the cap set by the insurance regulator, they said.

In November last year, the department had conducted searches on premises linked to the agents after goods & services tax (GST) authorities informed the insurance regulator about alleged malpractices by more than a dozen insurance companies while allocating commissions to their agents.

The Directorate General of GST Intelligence (DGGI) has been investigating these companies for allegedly floating shell companies to pay high commissions to agents and accounting for these payments under other heads to reduce tax outgo.

These companies, which include both life and non-life insurers, are under the scanner of the tax authorities for allegedly showing bogus expenses made to shell entities to pay the excess commissions, a senior government official told ET.

“So, while nearly 15% was paid through legitimate channels, the extra amount was routed to firms and showed as marketing or advertising expenses. These companies raised fake invoices, and GST is the only law which treats a fake invoice as a document,” the official alleged.

“The findings are on searches (by the I-T department) on the commission agents. Once they are investigated, depending on the probe findings, the (insurance) companies will also be asked to explain,” the person added.

Another person privy to the probe claimed, “These shell entities were probed and in certain cases they have confessed that they had not provided any advertisement or promotional service. The investigation of these expenses revealed that these were bogus expenses and nothing but accommodative entries. The statements are part of the ongoing investigations.”

In the GST case, insurance industry executives claimed that the authorities had wrongly interpreted marketing and sales-related expenses as commission on services and were seeking tax.

Some of these insurance companies had approached the finance ministry, seeking a resolution to what they view as legal differences on the interpretation of the GST statute, industry insiders had said.

The Mumbai unit of DGGI had conducted inspections on some companies and summoned their executives, as ET reported on November 12, 2022, citing people in the know.

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