A seismic scandal has rocked the insurance industry as an internal income tax department assessment reveals a staggering evasion of nearly ₹30,000 crore in income tax since the inception of the Goods and Services Tax (GST) on July 1, 2017. The alleged wrongdoing centers on insurance companies and their intermediaries who are accused of suppressing income and fabricating expenditures.
According to sources within the income tax department, tax demand notices are currently being prepared and will soon be dispatched to these entities in an attempt to recover the outstanding dues. The total amount involved in this scandal is anticipated to rise significantly once interest and penalties are applied.
A senior official stated, "We are sending demand notices along with penalty and interest to companies separately, and they will be granted the required time to respond or contest them. The assessment officer will make the determination regarding the amount of interest and penalty."
This revelation stems from an investigation launched by the income tax department last year, in collaboration with the Directorate General of GST Intelligence (DGGI). The probe was initiated after it was discovered that several insurance companies were allegedly skirting regulations on commissions by overpaying agents and intermediaries. These excessive payments were made against invoices deemed to be fraudulent by officials.
The income tax department delved into the loss of income tax arising from the purportedly inflated expenditure, unearthing a plethora of deceptive practices. "There were also instances of fake CSR expenditure, showing events which never took place and highly inflated advertising and event bills for which we have obtained all the transaction details," revealed another official.
The initial inquiry encompassed 30 insurance companies, 68 tax agents, and intermediaries. As the investigation progressed, it was expanded to encompass numerous banks that had been operating as insurance intermediaries nationwide. In the case of banks functioning as intermediaries, it was discovered that insurance companies had been covertly covering the manpower supply costs of these banks, which were never reflected in the banks' financial records, constituting a severe violation under income tax laws.
Simultaneously, the DGGI probed instances of insurers claiming input tax credit without the actual supply of goods and services, facilitated by counterfeit invoices provided by intermediaries. This alleged malpractice led to a colossal ₹3,500 crore in GST evasion. "This was a joint probe and an example of data sharing, which we conducted with the DGGI, and the evidence strongly supported the investigation," noted an official.
As the investigation nears its conclusion, the findings are currently being disseminated to the respective jurisdictions and assessing officers, signaling a turning point in this massive tax evasion scandal that has shaken the insurance industry to its core.
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