Rs 15,000 Crore Alleged Tax Evasion by Insurance Firms Uncovered

The Income Tax department has completed its investigation into several insurance companies and uncovered alleged tax evasion amounting to more than Rs 15,000 crore (Indian rupees). The investigation focused on suspected malpractices related to commission payments within the insurance industry.

As per reports, the investigation has concluded, and the expected tax liability stemming from these findings is approximately Rs 4,500 crore. Over 25 insurance companies and 250 businesses were subjected to scrutiny during the investigative process.

An anonymous source cited in the report indicated that the investigation results, which outline the alleged evasion strategies, methods employed, and the monetary sums involved, have been shared with relevant assessing officers within the concerned firms and intermediate entities.

Following an examination of the investigation findings, assessment officers will proceed to calculate and impose the tax demand, including associated interest and penalties.

The insurance companies were also under investigation by the Directorate General of GST Intelligence (DGGI). The I-T department's inquiry centered on potential tax evasion, purportedly in contravention of the regulations set forth by the Insurance Regulatory and Development Authority of India (IRDAI). Meanwhile, the DGGI focused on allegations of fabricated input tax credit (ITC) claims made by insurers.

A previous report in April suggested that the GST authorities were nearing the completion of their investigation into these alleged fake input tax credit claims. Subsequently, show-cause notices were expected to be issued to private insurance companies.

The spotlight on insurance companies' commission payments to agents was prompted by a disclosure to regulators in 2022 by GST authorities, who raised concerns about the utilization of purported shell companies to provide agents with commissions that exceeded established caps.

The insurance industry has refuted these allegations, asserting that the GST authorities have misconstrued the situation. They argue that expenditures linked to marketing and sales activities have been erroneously categorized as service commissions by regulatory authorities.