An internal assessment by the income tax department reveals that insurance companies and their intermediaries have allegedly evaded approximately ₹30,000 crore in income tax since July 1, 2017, by underreporting income and fabricating expenses.
The department has started taking action by issuing tax demand notices to these entities to recover the outstanding amounts, which may further increase with the addition of interest and penalties.
Companies will have the opportunity to respond to or contest the demand notices within the allotted time frame, said a senior official.
The assessment officer will determine the appropriate amount of interest and penalty to be applied.
The investigation originated from a joint effort between the income tax department and the Directorate General of GST Intelligence (DGGI) after uncovering instances of insurance firms escaping commission regulations by making excessive payments to agents and intermediaries. These payments were made against invoices that were found to be fake, said the official.
The income tax department examined the impact on income tax revenue due to the inflated expenditure.
Instances of false corporate social responsibility (CSR) expenditure were also discovered, including claims for events that have never occurred and highly inflated advertising and event bills.
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The department has found all the transaction details regarding these fraudulent activities, said another official. The investigation drive covered 30 insurance companies, 68 tax agents, and other intermediaries, with the investigation later expanding to include numerous banks that had acted as insurance intermediaries nationwide.
It was revealed that insurance companies had been paying the manpower supply costs of these banks, which were not reflected in the banks’ financial records, constituting non-disclosure and a serious violation under the income tax laws, said the official.
The DGGI’s investigation focused on instances where insurers claimed input tax credits without the actual supply of goods and services, allegedly based on fake invoices provided by intermediaries.
It was estimated that this led to a GST evasion of 3,500 crore. The collective efforts of the income tax department and the DGGI exemplify effective data sharing and collaboration in probe in combating tax evasion, supported by substantial evidence, said the official.
