Insurance Giants Face Huge Tax Battle as GST Authorities Intensify Crackdown
India's insurance sector is bracing for a protracted legal confrontation with tax authorities after the goods and services tax (GST) adjudicating authority (AA) recently confirmed a Rs2,400 crore demand against HDFC Life Insurance. This ruling could establish a precedent that might push the industry's total tax liability beyond Rs5,500 crore, a report says, quoting a senior government official.
According to the report from Economic Times (ET), the ruling against HDFC Life stems from an extensive investigation by the directorate general of GST intelligence (DGGI), which has sent show-cause notices to about 30 insurers for allegedly claiming input tax credit (ITC) without legitimate underlying services.
In a regulatory filing, HDFC Life confirmed that the GST AA issued a 'corrigendum' for the period between July 2017 and March 2022, demanding tax and penalties totalling Rs2,422 crore. The insurer has already deposited Rs250 crore with the department and intends to file a rectification application regarding the penalty amount, which it claims has been 'erroneously enhanced'.
"The Company is in the process of filing a rectification application before the tax authority with respect to the penalty amount which has been erroneously enhanced. Post passing of the rectification order, the penalty amount shall be retained as originally disclosed," it added.
According to GST authorities, the investigation revealed that HDFC Life made commission payments exceeding regulatory limits through intermediary vendors disguised as marketing expenses. The insurer allegedly issued invoices without actual services being rendered, with the adjudicating authority concluding that transactions were paper-based with no underlying supply of goods or services.
"This was solely to facilitate the indirect payment of commission above IRDAI limits. As a result of these transactions, the input tax credit of GST against such invoices is not eligible under Section 16 of the CGST Act," an officer told ET, citing the probe findings.
