Insurers approach govt for resolution in fake ITC case

If cos contest DGGI claim then they will have to admit to the practice of paying commissions to agents above the cap stipulated by IRDAI.

Published: 11th November 2022 09:35 AM  |   Last Updated: 11th November 2022 09:35 AM   |  A+A-

Tax, Fraud, Property Tax, Income tax

Image used for representational purpose only.

Express News Service

NEW DELHI: The insurance companies, which were found illegally availing input credit tax (ITC) by the Director General of GST Intelligence (DGGI), have approached finance ministry officials as they find themselves in a situation difficult to get out of it.

According to sources close to the development, the insurance companies risk losing their insurance licence if they don’t admit to the DGGI charges of using fake invoices of certain marketing expenses to avail input tax credit.

Sources told TNIE that the invoices under scrutiny are those related to expenses done on insurance agents. The insurance regulations set a cap on agent commissions for different insurance products. However, insurance companies often pay commissions higher than the cap, but book those commissions under other heads. For example, they would offer a travel package to the agent and show it as expenses on employees.

According to sources, the DGGI has termed many such expenses as fake. If insurance companies contest DGGI claim then they will have to admit to the practice of paying commissions to agents over and above the cap stipulated by the insurance regulator, and risk revocation of their licences for breaching insurance regulations.

The commission for insurance agents is currently capped at 30-35% of the first-year premium. The Insurance Regulatory and Development Authority of India (IRDAI), the insurance regulator, has recently proposed to lower the commission cap to 20%.

TNIE contacted a couple of insurance companies for their comments, but received no response from them at the time of filing this report. Sources further told TNIE that Section 194 (R) of Income Tax Act introduced recently further muddies the water for insurance companies. The new section requires businesses and companies to deduct 10% TDS on any types of benefits and perquisites extended to their distributors, channel partners or agents.

These companies are now in a dilemma if they should show such expenses as commission to agents and deduct 10% TDS on such expenses. The Director General of GST Intelligence (DGGI) had detected 15 insurance companies illegally availing input tax credit of Rs 824 crore by furnishing fake invoices of marketing services.

Tied in a knot

  • DGGI charges 15 insurers of claiming input tax credit on fake bills
  • Rs 824 crore fraudulent ITC has been claimed by insurers
  • Tax credits were claimed against expenses on agents over and above the commission cap
  • If insurers admit to paying commission over and above IRDAI stipulated cap, they risk losing their licenses 
  • The insurance companies have submitted around K300 crore so far to GST dept


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