IT Department alleges insurance companies evaded taxes worth Rs. 25,000cr
The Income Tax Department is about to issue tax demand notices totaling Rs. 25,000 crore by the end of March, to various insurance companies. It is alleged that the firms evaded tax by paying excessive commissions to agents and claimed deductions prior to April 1, 2023. According to Moneycontrol, the Central Board of Direct Taxes (CBDT) is reevaluating the taxes paid by these companies in specific years before the mentioned date.
Dispute over extra commission paid to agents
This tax dispute centers on the additional commission paid to agents and intermediaries beyond the limit established by the Insurance Regulatory and Development Authority of India (IRDAI). Tax authorities are scrutinizing extra commission payments made by companies under the pretext of other expenses. Starting April 1, 2023, IRDAI removed caps on agent commissions to promote transparency in the insurance sector. The Income Tax Department contends that extra commissions were paid and deductions were claimed without any corresponding services being provided.
GST probe and previous IT notices to insurance companies
In a related investigation, the Directorate General of GST Intelligence (DGGI) issued notices to at least 15 insurance companies, including Bajaj Allianz, Aditya Birla Sun Life Insurance, and HDFC Life Insurance, for allegedly evading tax worth Rs. 2,350 crore in 2023. HDFC Life received a show-cause notice from DGGI demanding Rs. 942 crore in tax for the period between July 2017 and FY22. Moneycontrol reported citing its sources that there is alleged fraudulent accounting by insurance companies.