The 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 Rs15,000 crore and the tax on this will be about Rs4,500 crore, says a report.
In the report, the Economic Times (ET)
says, the probe, which covered more than 25 insurers and over 250 businesses and used to route commissions to agents, was conducted by the department's investigation wing. The findings have been passed on to assessing officers (AOs), it says, quoting people with knowledge of the matter.
"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," one of them told the newspaper. "The AOs, after studying the findings, will raise the tax demand, inclusive of interest and penalty."
Apart from the I-T department, the insurers were also investigated by the directorate general of goods and services tax (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.
Earlier this month, ICICI Lombard General Insurance Ltd was issued a show-cause notice (SCN) by the DGGI for a tax liability worth Rs273.44 crore under Section 74(1) of the Central GST Act. The company has deposited an amount of Rs104.13 crore under protest without accepting any liability in this regard.
In June this year, its sister concern, ICICI Prudential Life Insurance Ltd, also received a notice for an alleged GST liability of about Rs492 crore. In a regulatory filing, ICICI Prudential says it received SCN-cum-demand notice for Rs492 crore for the July 2017 to July 2022 period from DGGI. ICICI Prudential deposited Rs190 crore without accepting any liability in this regard.
Since March, the DGGI has sent show-cause notices to 30 insurance companies seeking GST payments of over Rs4,000 crore. Sources told ET that these companies have paid around Rs700 crore so far to the GST authorities and are in the process of approaching the adjudicating authority against the DGGI's action.
According to an April 2023 report from ET
, investigators from the tax department are apparently scrutinising transactions of over Rs60,000 crore and also investigating suspected evasion of GST exceeding Rs5,500 crore.
In March 2023, the Insurance Regulatory and Development Authority of India (IRDAI) lifted limits on the payment of commissions to insurance intermediaries. According to new rules, the earlier cap on commission payments is now replaced with an overall cap on expenses of management of insurers.
According to Shrirang Samant, who worked in senior leadership roles in the general insurance industry, the issue is not the payment of a commission but the way it was being routed to the recipients. Mr Samant wrote an article in Moneylife
' Demystifying Regulatory Changes in Insurance Commissions
' in which he shared his views on the IRDAI rules and the newspaper report.
Talking about the ET report, he asks how this alleged evasion came about. "The genesis lies in the regulatory caps on payment of commission—until now, the regulator laid down the commission caps for various classes of insurance products. The fact was that these caps served as the floor for commission payments rather than the ceiling, which was the intention."
Distributors of insurance products, be they brokers or agents, used their market access to demand ever higher commissions from insurance companies, he says, adding, in their initial frenzy to acquire and grow market share, insurance companies had to give in to these demands.