A GST Investigation Is Underway Into Insurance Companies' Commissions To Agents
Earlier this year, the Directorate General of GST Intelligence or DGGI initiated investigations against a number of life insurance and non-life insurance companies to check the issue of ineligible input tax credits. During the investigation, it has been found that many insurance companies have adopted alleged malpractices to reduce tax outgo and have issued invoices based on the commission paid out to intermediaries or agents for providing a bunch of services. Thus, a dozen insurance companies now stand guilty of illegally availing input tax credits or ITC.
As per the Insurance Regulatory and Development Authority of India or IRDAI, the commission capped for insurance agents is set to around 20% of the first-year premium. However, many insurance companies have exceeded this cap and have shown bogus expenses in order to pay for the additional expenses.
According to reports, a total of Rs. 824 crores of fraudulent ITC has been availed by insurance companies to date and thus DGGI is all set to take strict actions against such companies. These insurance firms are being investigated for transactions worth more than Rs. 5000 crores and involving over Rs. 500 crores in GST. One of the investigating officials even said that “in certain cases, they have also confessed to the wrongdoing”.
In view of this investigation, it is feared by the alleged insurance companies that they might lose their insurance licence if they fail to validate their expenses and breach the regulations set by the Insurance Regulatory and Development Authority of India. Thus, the executives of insurance companies have even made an attempt to speak to the finance ministry seeking help in this regard and make their point of view clear. One of the senior executives in this matter said “From insurance companies' perspective, these are necessary expenses to sell products and not taxable. The finance ministry officials have been very receptive and assured to look into the matter”.
As per the latest reports, the Directorate General of GST Intelligence has found 15 insurance companies guilty in this matter. Now, it’s up to these insurance companies to find ways to prove that the alleged expenses are not fake and protect their insurance licence.
