Several insurance companies and their intermediaries are facing increasing pressure over accusations of evading approximately INR 30,000 crore in income tax since the introduction of the Goods and Services Tax (GST) on July 1, 2017. These entities are accused of underreporting their incomes and presenting false expenditures. To recover these outstanding tax amounts, the Income Tax (I-T) department has initiated the issuance of demand notices to these entities, according to an internal assessment by tax authorities. Moreover, the total dues may rise further due to the imposition of interest and penalties, as reported by the Economic Times. This development highlights the issue of tax evasion within the insurance sector and the measures being taken to address it through legal actions and recovery efforts.
“We are sending demand notices along with penalties and interest to companies separately, and they will have the stipulated time to respond or challenge them,” stated a senior official to the financial daily. The assessment officer will determine the specific amounts for interest and penalties in this case.
The matter came to light when the I-T department, in collaboration with the Directorate General of GST Intelligence (DGGI), launched an investigation last year. The focus of the investigation was on insurance companies suspected of evading regulations regarding commissions and making payments exceeding permissible limits to agents and intermediaries, often through invoices later identified as fake. The ongoing investigation is aimed at addressing these malpractices within the insurance sector. The tax department probed the potential loss of income tax revenue resulting from inflated or exaggerated expenditures reported by insurance companies and their intermediaries.
The publication quoted another official who mentioned that in addition to inflated expenditures, there were instances of fabricated Corporate Social Responsibility (CSR) spending, involving falsely documented CSR events that never took place, as well as significantly inflated advertising and event bills. The department has obtained transaction details related to these activities, indicating potential instances of tax evasion and false reporting.
The initial probe initially targeted 30 insurance companies and 68 tax agents and intermediaries. Subsequently, the investigation expanded to include numerous banks that had acted as insurance intermediaries nationwide.