Life and general insurance majors Bajaj Allianz, Aditya Birla Sun Life Insurance, and HDFC Life Insurance, along with some public sector insurers, have been slapped with show cause notices for alleged evasion of Goods and Services Tax (GST) of ₹2,400 crore.
Private Sector Insurers Face Significant Demands
Leading private sector life insurer HDFC Life Insurance got a GST demand notice of Rs942 crore, while ICICI Prudential got a notice for GST liability of Rs492 crore. HDFC Life Insurance deposited Rs250 crore with DGGI, while ICICI Prudential deposited Rs190 crore.
Earlier, ICICI Prudential, and Max Life Insurance were served GST notices leading to recovery of Rs700 crore.
I-T Department Investigates Alleged Fraudulent Practices
The Income Tax (I-T) department has simultaneously begun an investigation into insurance companies allegedly availing input tax credit under GST in a fraudulent manner and thus escaping income tax assessment.
The list of 15 insurance companies that have been served show cause notices by the Directorate General of GST Intelligence (DGGI) for allegedly claiming fake input tax credits (ITCs) was prepared after investigations into payments to intermediaries that was further paid to commission agents in violation of the permissible limits prescribed in the rules and regulations of the Insurance Regulatory and Development Authority of India (IRDAI).
Disallowance under Section 148A of Income Tax Act
The intermediaries acted as the service receiver as well as the provider for the insurance companies for further commission payments to agents. The inability of intermediaries to provide sufficient documentation on being a service recipient triggered disallowance under Section 148A of the Income Tax Act and led to scrutiny for allegedly “escaping assessment” through bogus purchases.
DGGI investigations revealed that these insurers were paying commissions beyond the limit set by the insurance regulator to their corporate agents in the garb of expenses related to marketing and brand activation.
