The Income Tax Department has found insurance companies circumventing rules set by the industry regulator to pay higher commissions to agents, among other industry-wide irregularities and rampant "tax evasion", The Hindu reported.
“Only recently, we mounted some actions and found a lot of irregularities in the way they were paying commission. All the insurance companies, be it any insurance company you name,” Central Board of Direct Taxes (CBDT) chairperson Nitin Gupta told the publication. “Because you are bypassing the law laid down by the regulatory authority, that expenditure is impermissible under the Income Tax Act as well,” he added.
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This find comes from a probe launched by the Directorate General of Goods and Services Tax (GST) Intelligence in 2022, wherein 16 insurance companies were pulled up for wrongly availing input tax credit to the tune of Rs 824 crore.
The Insurance Regulatory and Development Authority of India (IRDAI) only allows nominal commissions for corporate insurance agents, but the probe found insurance firms paying more to corporate agents like non-banking finance companies (NBFCs) in the micro-financing space as they were helping sales of their insurance policies.
Insurance companies paid higher commissions by generating invoices from intermediaries for services like web marketing and advertising without actually providing them, the report said.
The CBDT will initiate action soon, Gupta said.