The Goods and Services Tax Department has extended its investigation against some insurance companies on the belief that they are involved in the wrongful availment of the Input Tax Credit (ITC). The Director General of GST Intelligence (DGGI) is expected to issue show cause notices to 10 more insurers soon, taking the number of firms involved in the operation to 30.
The inspection of 20 insurers has already been done, and the remaining 10 cases are under probe as of now. It will depend completely on what they dig up, and then the rest of them will also receive show cause notices, according to the person aware of the drive. The most recent letters would be sent to some of the well-known general insurance companies, the insider continued.
The DGGI has detected a total of Rs. 2500 crore in tax evasion against insurers to date, of which the companies have already paid over Rs. 750 crore on their own. The DGGI zonal offices in Mumbai, Meerut, and Gurugram are leading the investigations.
After finding out that some of these companies had improperly claimed input tax credits based on invoices issued by different intermediaries for providing advertising, marketing, and brand activation services even though such services had not actually been provided. The DGGI began an investigation into insurance companies in 2022. The ITC was not permitted by the GST law in the absence of any underlying supply.
This was done in order to bypass IRDAI restrictions that required corporate representatives to only receive minimal commissions. The insurers received invoices from these middlemen for the provision of services like online marketing and advertising to transfer NBFCs acting as corporate agents larger than allowed commissions.
Such tactics against private sector insurers have so far been uncovered through the investigation.
Many insurers are believed to have also requested that the GST department transfer the subject to the insurance regulator, IRDAI, even though this has grown into a probe involving the entire industry. Officials, however, believe that because the matter involves taxes, the Central Board of Indirect Taxes and Customs should interfere or handle it.
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According to the sources, this is starting to affect the entire business, and both the GST and income tax offices have started looking into these actions. It was also said that the IRDAI’s new commission rules are anticipated to help abolish such practices.
The net amount that can be spent on managing insurance businesses is capped under the new IRDAI regulations, which will be applicable from April 1.
