Tax Evasion Worth Rs 15,000 Cr By Insurance Companies

Tax Evasion Worth Rs 15,000 Cr By Insurance Companies

Tax Evasion Worth Rs 15,000 Cr By Insurance Companies: The Income Tax (I-T) department’s investigated into insurance company, and it discovered more than Rs 15,000 crore in tax evasion. The investigation was being carried out to look into potential insurance company fraud regarding commission payments. A report states that the investigation is now over, and a tax of about Rs 4,500 crore will be assessed in relation to it. The department looked into more than 25 insurers and 250 businesses during the investigation.

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According to sources, “The findings, which detail the alleged evasion, the method of operation, and the amounts involved, have been shared with assessing officers of the concerned firms and the mid-level entities.”

The report also stated that after reviewing the results of the investigation, the assessment officers will raise the tax demand, inclusive of interest and penalty.

The insurers were also investigated by the Directorate General of GST Intelligence (DGGI). The investigation by the tax department looked into alleged tax evasion in violation of the Insurance Regulatory and Development Authority of India (IRDAI), while the DGGI looked into the insurers for allegedly fake input tax credit (ITC) claims.

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Sources further reported in April that the GST authorities expected to wrap up their investigation into fake input tax credit claims soon and issue show-cause letters to private insurance companies.

Insurance entities came under scrutiny for the commissions paid to the agents by the insurers after the GST authorities complained to the regulator in 2022 about the alleged use of shell companies to give agents commissions far in excess of the cap. The insurance industry has maintained that the GST authorities have misinterpreted the situation. They claim that marketing and sales-related expenses have been categorised as commissions on services by the authorities and this is not correct.

According to a report in July, about 15 insurance companies including the likes of HDFC Life Insurance, Aditya Birla Sun Life Insurance, and more were found to be evading GST worth Rs 2,350 crore.

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What is Tax Evasion?

Tax evasion is illegal action in which a individual or company to avoid paying tax liability. It involves hiding or false income, without proof of inflating deductions, not reporting cash transaction etc. Tax evasion is serious offense comes under criminal charges and substantial penalties.

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Penalties for Tax Evasion

There are various penalties that the income tax department can impose on anyone who is found guilty of evading or avoiding taxes. These penalties can also apply to companies that either fail to report and pay their own taxes or fail to deduct taxes at source when they are supposed to.

Some of these may be:

  • Collecting 100% to 300% of the tax when income is not disclosed.
  • In case of a failure to pay the tax due, the assessing officer may impose a penalty amount but it cannot exceed the amount due in taxes.
  • In case someone has concealed details of their income or any fringe benefits that are taxable, the penalty can range from 100% to 300% of the tax amount due.
  • In case a person or a company fails to maintain their accounts properly as directed by section 44AA, a penalty of Rs. 25,000 may be levied.
  • If a company fails to get itself audited or fails to provide a report of said audit, then a penalty of Rs. 1.5 lakhs or 0.5% of the sales turnover, whichever is less, may be charged.
  • In case an organisation fails to deduct tax where it is supposed to while making payments then the penalty could be payment of the tax due.
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