A prominent private bank, 29 insurance businesses, five non-banking financial organizations (NBFCs), and more than 100 suppliers would get show-cause notices from the GST authorities. These organizations were involved in funding bogus services so that the insurers could pay a bank fee that exceeded the legal limit.
A renowned private bank received a commission from an insurance firm that is a member of the same group as the bank in exchange for providing the bank with office workers to promote the insurance policies of loan borrowers. A multinational corporation (MNC) was hired by the insurance business to manage payroll and personnel, and they were placed in various offices of the bank.
The GST authorities are looking into another 28 private insurers for using fraudulent input tax credits (ITCs) to pay financing businesses extra commissions for bogus services by providing manpower or by paying in kind.
Insurance companies have paid up to 70% of the first-year premium under different headings, in contrast to the allowable 15% fee. The insurance company compensated for the labour that the distributor used, but it also filed an ITC claim.
The insurance companies would have paid Rs 800 crore of the bogus claimed input tax credit at the time of the investigation since the same would be anticipated that the amount engaged can be a couple of 1000 cr. For the concern of Rs 13,000 cr the income tax department would investigate such firms in the tax evasion case.
A GST official claims that lenders have the power to persuade customers to take out consumer, vehicle, or house loans and buy insurance. As a result, insurers compete with one another by giving financial businesses more commissions in order to promote their products.
The insurer’s strategy for paying a greater commission was to employ individuals from staffing MNCs, but these new hires would ultimately work for banks and NBFCs (see graphic).
“During the investigation, it was found that none of the employees placed at banks/NBFCs are assigned any work of insurance companies. ITC was availed by insurance companies for workforce deployed and working for other companies,” the GST officer stated. “Salary of these outsourced employees came from insurance companies, but they were working for the bank or NBFCs,” he counted.
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Executives from the staffing MNCs stated that because the insurance firms were the parties with whom they had contracts, it was not their responsibility as to how their clients distributed their workforce.
