GST Authorities Broadens Investigation Against Insurers, 10 More Firms to Get Notices Soon

GST Authorities Broadens Investigation Against Insurers, 10 More Firms to Get Notices Soon

The investigation conducted by the goods and services tax department regarding the alleged improper claiming of input tax credit by insurance companies has been expanded. It is expected that the Director General of GST Intelligence will soon issue show cause notices to an additional 10 insurance companies, bringing the total number of firms under scrutiny to 30.

Currently, investigations have been concluded for 20 insurers while 10 other cases are currently under investigation, according to a source familiar with the situation. If any wrongdoing is found, show-cause notices will also be issued to the latter group. The source further added that some of the leading general insurance companies would be the recipients of these recent notices.

The Directorate General of Goods and Services Tax Intelligence (DGGI) has uncovered a tax evasion amounting to Rs 2,500 crore by insurers. Out of this sum, the companies have voluntarily paid nearly Rs 750 crore. The investigations are currently being carried out by the DGGI's zonal offices in Mumbai, Meerut, and Gurugram.

In 2022, the DGGI initiated an investigation into insurance companies upon discovering that certain firms had wrongly claimed input tax credits. These claims were based on invoices issued by various intermediaries for services such as advertising, marketing, and brand activation, despite the fact that no such services were actually rendered. 

As per the GST law, the input tax credit cannot be claimed if there is no genuine supply of services underlying the invoices.

The motive behind this action was to bypass the regulations set by the Insurance Regulatory and Development Authority of India (IRDAI), which stipulated that only nominal commissions could be paid to corporate agents. 

In order to transfer commissions higher than the permitted limit to non-banking financial companies (NBFCs) acting as corporate agents, the insurers obtained invoices from intermediaries for services such as advertising and web marketing.

Although this has evolved into a comprehensive investigation across the insurance industry, it is believed that numerous insurers have requested the GST department to involve the insurance regulator, IRDAI, in the matter. 

Nonetheless, officials maintain that since this issue is related to taxation, it falls under the jurisdiction of the Central Board of Indirect Taxes and Customs and should be handled within that domain.

Under the new rules implemented by IRDAI, starting from April 1, there is a comprehensive limit imposed on the management expenses of insurance companies.

The source mentioned that this matter is becoming a widespread concern within the industry, leading both the GST department and the income tax department to initiate investigations into these practices. The source further added that the implementation of new commission norms by IRDAI is anticipated to assist in curbing these practices.

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