IT Department knocks down on Bajaj Allianz and ICICI Prudential amid wider Investigation

India’s tax authority has issued show-cause notices to Bajaj Allianz Life Insurance and ICICI Prudential Life Insurance for tax evasion since 2017, as part of a probe involving 16 insurers and $610 million in unpaid dues, as per three sources.

According to two sources, the investigation, which began in September of last year, is a crackdown on the insurance industry’s practise of accounting for all sales commissions beyond the regulator-mandated maximum as advertising and marketing costs and then claiming a tax credit.

Tax authorities believe that 16 insurance businesses owe the government over 50 billion rupees ($610 million) in unpaid taxes, interest, and penalties since July 2017, when India imposed the goods and services tax (GST), according to two sources.

Two sources, including a government official, stated that the Directorate General of Goods and Services Tax Intelligence (DGGI) of India is currently delivering show-cause notice to additional insurance providers.

Reuters’ requests for comment from Bajaj Allianz, ICICI Prudential, and the Indian finance ministry went unanswered. Due to their lack of authorization to speak to the media, all of the sources requested anonymity.

The Insurance Regulatory and Development Authority of India (IRDAI), the industry regulator, might, however, retroactively apply a new rule regarding commissions, rendering the complaint without substance.

With effect from April 1, the IRDAI has eliminated specific commission-related limits and set a general cap on both operating costs and commissions.

According to two sources, the insurance industry is requesting that the regulator implement this adjustment in the past. The sources further stated that if such occurs, the case would no longer be valid.

In order to learn more about the procedures insurance companies use, the tax authorities have also questioned some banks that function as corporate agents and sell insurance products to their clients.

According to the third source, they include banks that have bancassurance agreements with ICICI Prudential and Bajaj Allianz.

However, the third source suggested that banks might not be drawn further into the probe because they already pay tax on the services they use to generate bills.