Insurance agents got extra Rs 25,000 crore via benami companies: Income Tax Dept.
Over Rs 25,000 crore changing hands in deals involving more than 60 intermediary firms using hundreds of bank accounts mark the contours of the elaborate probe on suspected Benami transactions between agents of insurance companies and go-between entities.
The Income Tax department is learnt to have prepared an assessment report on how a string of intermediaries were used by insurers to pay off extra commission – over and above allowed under regulations – to their agents selling insurance policies.
However, the insurance companies, who were pulled up last year by the I-T department, are not the actors under the benami investigation. The current probe, which is at an initial stage, focuses on the intermediary entities (acting as ‘benamidars’) and the official agents (which are the real beneficiaries).
The I-T department estimates the benami amount – the quantum of excess, unauthorised payment – to be in excess of Rs 25,000 crore, sources told ET.
“Intermediary companies are typically small entities which won’t be able to handle more than a few hundred crores. So, a lot of them had to be used, which in turn moved the money through other entities to hide the trail,” said an industry person.
The probe has begun after the I-T department investigation wing submitted a report on its findings suggesting the need of a detailed probe under the Benami Transactions (Prohibition) Act, 2016 (PBPT) against the intermediaries. Last year, the IT department had probed multiple insurance companies and the intermediaries. According to the tax office, insurers have to cough up higher tax as they cannot claim deduction on the extra commission while the amount received by the intermediaries from the insurers is “unexplained income”. The agents, which are large corporate bodies, have paid tax on the entire amount – received legitimately from insurers as well as the extra flowing in from intermediaries in a circuitous route. Thus, even as they escaped charges of tax evasion, they are now grappling with allegations of being part of Benami deals.
The notices under the Benami Transactions (Prohibition) Amendment Act, 2016 have been served to the agents who are yet to respond. They have been asked to share details of transactions entailing money received from the intermediaries.
Some perceive that probing the benami angle could be time consuming and difficult for the I-T department. According to an expert, “The onus to prove that a transaction is a Benami transaction lies heavily on the law enforcement agencies, which seems like an uphill task in these matters as the parties have various factual and legal arguments to defend themselves. One will need to wait and watch how the law enforcement agencies as well as courts look at the implications on these transactions”.
A benami transaction or an arrangement is one where stocks or funds are “transferred” to or is “held” by someone though the consideration was provided or paid by another person. Thus, the department has to prove that the holder of the asset (or, the front) is not its true beneficial owner.
In fact, even though the I-T officials have gone after the insurance industry and their partners – first over alleged tax evasion and now on Benami deals – there has been no regulatory action against any of the insurance companies.
Under Benami law, the department can provisionally attach the funds with the insurance agents after show cause notices are served. Currently, the department is gathering information on the deals they suspect are Benami in nature.
The transactions being looked into pertain to those that happened before March 2023 when the individual cap on commission payments on insurance products was replaced with an overall cap on expenses of management of insurers.
Source from: https://cafemutual.com/news/press-news/31411-insurance-agents-got-extra-rs-25000-crore-via-benami-companies-i-t-dept