treeviewThe insurance industry has addressed the government to resolve the ‘GST avoidance’ issue without burning its fingers. While a top representative team comprised of some of the CEOs of leading private sector general insurers has already met Tarun Bajaj, retiring Revenue Secretary, Ministry of Finance (MoF), life insurer representatives plan to meet Bajaj’s successor Sanjay Malhotra shortly after he takes over his new job in December.
While some insurance executives said it was due to their carelessness, the evasion problem has shed light on the sector’s opaque practices. These insurance businesses received input tax credits based on invoices made by various intermediaries for services such as advertising, marketing, and brand activation that were never supplied.
Previously, the government stated that the Directorate General of GST Intelligence, Mumbai Zonal Unit, has launched investigations into 16 insurance businesses for claiming the illegal input tax credit. According to a government statement, the unit’s investigations indicated that an input tax credit of Rs 824 crore was claimed, of which Rs 217 crore was paid willingly by these 16 insurance businesses.
“In the absence of any underlying supply, the stated insurance firms’ input tax credit is not authorized under GST rules,” it added.
According to MoF sources, a representative team from the general insurance business recently met with Bajaj to brief him on their side of the story. After a patient hearing with the insurers, Bajaj allegedly informed them that he would guarantee a fair probe into the alleged breach of GST laws by certain of the industry’s companies.
According to sources, he also promised that there will be no coercive steps taken against general insurers, such as the arrest or summons of the businesses’ CEOs by GST enforcement officials.
After hearing the CEOs’ arguments, a key government official stated, “Normally, the insurance business has remained law compliant.” All parts of the claims will be investigated. If the insurers make any payments to any institutions, they will be exempt from the GST authorities’ examination.”
There have also been rumors that certain insurers are willing to resolve GST lawsuits by paying large fines.
In addition, the government has stated that several non-banking financial companies (NBFCs) engaged in microfinance businesses are acting as corporate agents of the insurance companies and are cross-selling their single premium credit-linked insurance policies in the course of their lending business.
Corporate agents are only entitled to get a small commission under IRDA standards. “To avoid these regulations, insurance companies have obtained invoices from intermediaries to transfer commission (over the permissible limit) to NBFCs for the supply of services such as advertising, web marketing, and so on, even though there has been no underlying supply of services.” These middlemen, in turn, have received bills from NBFCs for such deliveries,” the ministry stated.
The insurance industry is advocating for a decrease in the GST on health insurance premiums to bring more individuals within the insurance coverage. After the epidemic hit the country in March 2020 and medical expenditures skyrocketed, the health sector has already surpassed the motor segment as the fastest-growing segment in the insurance business.