The finance ministry has declined to intervene in a plea for relief made by the insurance industry, which is facing penal action from tax authorities for goods and services tax GST input tax credit violations. The ministry has referred the matter to the Insurance Regulatory and Development Authority of India , said people with knowledge of the matter. Officials peg the alleged tax evasion at over ₹2,000 crore.
The industry had approached the revenue department in the first week of April seeking a lenient view of the industry-wide commission practice and not to treat these violations as wilful evasion. In a letter to the department signed by 22 insurers and intermediaries, the industry also sought relief from the frequent summonses and the large penalties imposed.
“We cannot interfere in the investigation and if there is an issue regarding commissions, Irdai is the authority, so they were referred to approach it,” an official told ET.
A joint probe by the Directorate General of GST Intelligence and I-T department found that insurance firms were circumventing Irdai commission norms and paying more to agents and intermediaries selling policies against invoices that authorities said were fake.
The tax dwpartment has alleged insurance companies availed input tax credit ITC without the underlying supply of goods and services, based on fake invoices provided by these insurance intermediaries.
The DGGI has issued notices and imposed tax demands on 16 insurance companies and half a dozen intermediaries.
ET was the first to report on September 29, 2022, about investigations into potential GST input tax credit violations by insurers and on January 24 about similar probes by the income tax department.
The invoices were raised to pay that extra commission and the intent was not to evade tax as the commission cap set by the IRDAI was too low, the industry said.
Insurance company executives who did not want to be identified said IRDAI hasn’t responded yet.
Officials of the Central Board of Indirect Taxes and Customs (CBIC) and the Central Board of Direct Taxes (CBDT) said that the finance minister asked them to take strict action where there is a case for “wilful default” at a review meeting last week.
“There is a clear case of input tax credit fraud and we have our data to support, so all the notices are as per the law,” another official added.
Questioned about the issue on an earnings call on April 26, HDFC Life Insurance CFO Niraj Shah said this was an “industry-wide issue, and there has been a request for information to be provided around the deductions that have been availed of on the input tax credit.”
The company has been cooperating with the authorities and giving them all the requisite information.
“We await to hear from them in terms of a formal show cause notice,” he said.
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