Tax Officials Summon Insurance Middlemen in Bogus Invoices Row

The Goods and Services Tax (GST) authorities summoned a number of insurance middlemen and aggregators in the previous two weeks in an effort to gather further evidence as part of their investigation into the false invoicing case against them.

The records sought include their agreement and contract with insurance firms, the total amount of input tax credits granted to them since 2018–19, as well as documentation to substantiate the claim that services were rendered. The summonses were issued in connection with an investigation by the Directorate General of GST Intelligence (DGGI) into allegations of fraudulently claiming input tax credits by at least 16 insurance businesses in 2022.

In collusion with insurance firms, these middlemen allegedly produced bogus invoices under the guise of marketing and sales. According to a source with knowledge of the situation, “the summons have been issued under section 70 of the Central Tax Act to some of the middlemen.”

The source continued, “Some of them gave incomplete information, but in many cases they failed to establish the services rendered for which invoices were made.” Recently, the Tax authorities began criminal action against a listed intermediary. The insider stated that “the situation is still pending and the corporation in question requested some time to give details.”

The income tax administration has already begun interviewing representatives of some of these intermediaries in order to learn more about the money they got from the insurance firms as “commission” and if it was completely stated in their tax file.

Chief financial executives from a few of these companies were questioned last week. They have been asked to give a tonne of information pertaining to their tax filing, particularly the income these intermediaries earned from the largest insurers in the nation, according to a source.

They said that their tax returns from the previous three to five years are currently being examined by the I-T department.

The focus of the investigation is on at least 120 insurance intermediaries and aggregators, mostly from Bengaluru, Mumbai, and Gurugram.

The I-T team would shortly contact insurance firms after gathering all of the data from the intermediaries, according to sources. The government believes widespread irregularities in the way that brokerages and intermediaries are paid commissions. If the amount involved is $5 crore or more, issuing an invoice without a supply is punishable by a prison sentence of up to five years under the GST regime. Bail cannot be granted for the crime. According to the DGGI investigation, insurance companies were allegedly paying commissions of up to 70% to middlemen like these and even offline agents. Incidentally, the cap ranges between 15-20% depending on the goods the Insurance Regulation and Development Authority of India has approved (IRDAI).

According to the sources mentioned above, the GST team is monitoring the invalid input tax credit while the tax division is investigating potential tax evasion by generating fictitious invoices.

They emphasised that the practise is deliberately planned and carried out with the cooperation of insurance firms. The investigators are looking into invoices generated by both physical brokerages and internet insurance markets. As part of its investigation last year, the DGGI discovered tax evasion by 15 life and non-life insurance companies as well as other parties totaling 824 crore.