Income tax (I-T) department has completed its investigation into alleged malpractices in the payment of commissions by insurance companies and uncovered evasion of more than ₹15,000 crore, said people with knowledge of the matter. The tax on this will be about ₹4,500 crore, they said.
The probe, which covered more than 25 insurers and over 250 businesses used to route commissions to agents, was conducted by the department’s investigation wing. The findings have been passed on to assessing officers (AOs), said the people cited. The findings, which detail the alleged evasion, the modus operandi and the amounts involved, have been shared with assessing officers of the concerned firms and the mid-level entities,” said one of them. The AOs, after studying the findings, will raise the tax demand, inclusive of interest and penalty.
Apart from the IT department, the insurers were also investigated by the Directorate General of GST Intelligence (DGGI). While the DGGI was probing them for fake input tax credit (ITC) claims, the tax department was investigating alleged tax evasion in violation of Insurance Regulatory and Development Authority of India (IRDAI) norms.
Since March, the DGGI has sent show-cause notices to 30 firms seeking GST payments of over Rs 4,000 crore. Sources added that these firms have paid around Rs 700 crore so far to the GST authorities and are in the process of approaching the adjudicating authority against the DGGI’s action.
A senior government official told ET that industry executives plan to meet the finance ministry representatives to “resolve the issue”.
The industry is of the view that the actions by the DGGI and the I-T department are unjust and the commission issue is a matter of legal interpretation, the person said.
The departments have made out the case before the ministry that it’s a case of fraud and these findings are based on audit findings and thorough investigation,” the official said. This isn’t the first time that the (industry) representatives are trying to get an audience with the finance ministry.”
They have done so twice in the past but the ministry has refused to intervene, the official added.
In both cases, the firms have the option to take legal recourse and challenge these before the concerned authority and subsequently before the high court,” another official added.
The I-T department had sent the companies notices under Section 131 of the Income Tax Act, which allows it to conduct inquiries, summon individuals and demand accounting records and other documents.
The probe has revealed that the insurers apparently maintained a list of email IDs with specific employees keeping track of payments made to agents through business entities linked to them. During the course of the probe, the statements of these employees were recorded and they have revealed that their job was to ensure that the overriding commission is paid through various routes and these transactions look genuine, incurred either through payroll costs or marketing and advertising expenditures,” said the person.