gst: commission from insurance companies to agents under GST control

Goods and Services Tax (GST) authorities have notified the insurance regulator of allegations of malfeasance by more than a dozen insurance companies when awarding commissions to agents, said to AND people in the know.

The Directorate General of GST Intelligence (DGGI) investigated these companies for allegedly floating shell companies to pay high commissions and book payments under other headings to reduce tax expenditures. During its investigation, the DGGI’s Mumbai unit carried out inspections on some companies and also summoned their leaders, the sources said.

Insurance industry executives, however, said GST authorities had misinterpreted marketing and sales expenses as a commission on services and were seeking a tax. Some of those insurance companies have approached the Department of Finance to find a solution to what they see as legal differences over the interpretation of the GST law, industry insiders said.

According to a senior government official, the survey found that some companies pay up to 70% commission to agents, although it is usually around 15% in the industry. These companies, which include both life and non-life insurers, are under scrutiny from tax authorities for allegedly showing false expenses made to fictitious entities to pay excess commissions, the official said. “So while almost 15% was paid through legitimate channels, the extra amount was funneled to companies and presented as marketing or advertising expenses. These companies issued false invoices, and the GST is the only law that treats a fake invoice as a document,” the official explained.

The department investigates transactions of these companies worth more than ₹5,000 crore and involving GST of more than ₹500 crore. “In some cases, they also confessed to wrongdoing,” another official added.

Meanwhile, during the fourth week of October, the general insurance companies met with senior officials from the Ministry of Finance to share their views and seek a solution.

“The problem is one of interpretation and as it is a GST issue, the Ministry of Finance has been approached. The tax authorities have imposed huge claims on the insurance companies because they interpret the marketing and sales expenses as services and charge a tax on them,” a senior official said. insurance manager. “From the perspective of insurance companies, these are necessary expenses to sell products and not taxable. Finance Ministry officials have been very responsive and assured to look into the matter,” the executive said.

Insurance industry insiders told ET that the companies had already paid millions of rupees in taxes “subject to change”.

The companies are wary of strict action warnings, including arrest, and have demanded a fair hearing.

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Aurora J. William