GST investigation into Insurers widens; GST Notices to 10 more Firms soon

The goods and services tax department has expanded its investigation into insurance businesses for potential improper use of input tax credit. The Director General of GST Intelligence is expected to issue show cause notifications to ten additional insurers soon, bringing the total number of enterprises under investigation to 30.

“Investigations into 20 insurers are complete, and another ten cases are currently being investigated. Show cause notices would be delivered to the latter as well, depending on the results,” said a source acquainted with the situation. According to the source, the most recent round of warnings will be served on some of the most renowned general insurance businesses.

The DGGI has discovered a total tax evasion of Rs 2,500 crore among insurers, of which the corporations have already paid close to Rs 750 crore on their own. The investigations are being led by the DGGI’s Mumbai, Meerut, and Gurugram zonal offices.

The DGGI launched an investigation into insurance companies in 2022 after discovering that some of these firms had wrongfully claimed input tax credit on the basis of invoices issued by various intermediaries for providing advertising, marketing, and brand activation services even when no such services had been provided. The ITC was not permitted under GST rules in the absence of any underlying supply.

This was done in order to avoid IRDAI laws that required only modest commissions from corporate representatives. The insurers procured invoices from these intermediaries for the provision of advertising and online marketing services in order to transfer a higher-than-allowable fee to NBFCs acting as corporate agents.

The investigation has so far uncovered similar practises at private sector insurers.

While this has become an industry-wide probe, numerous insurers are said to have also requested that the GST department send the matter to the insurance regulator IRDAI. Officials, on the other hand, believe that because this is a taxation matter, it must be handled by the Central Board of Indirect Taxes and Customs.

“This is becoming an industry-wide issue, and both the GST and income tax departments have initiated investigations into these practises,” said the source, adding that the new IRDAI commission standards are likely to help limit this.

The new IRDAI guidelines, which go into effect on April 1, set an overall maximum on insurance company administration spending.