I-T Dept Assessment Shows Insurance Agents Received Rs25,000 Crore Extra Commission via Benami Companies: Report
Moneylife Digital Team 14 February 2024
The income-tax (I-T) department is learnt to have prepared an assessment report on how insurers used a string of intermediaries to pay off extra commission—over and above allowed under regulations—to their agents selling insurance policies, says a report. The I-T department estimates the benami amount - the quantum of excess, unauthorised payment - to be more than Rs25,000 crore, sources told Economic Times (ET).
 
According to the report, over Rs25,000 crore changing hands in deals involving more than 60 intermediary firms through hundreds of bank accounts mark the contours of the elaborate probe on suspected benami transactions between agents of insurance companies and go-between entities.
 
But the insurance companies pulled up last year by the I-T department are not the actors under the Benami investigation. 
 
Quoting sources familiar with the matter, ET says the current investigation primarily focused on intermediary companies, acting as ‘benamidars’, and the actual beneficiaries, the official agents of insurance companies. The assessment report prepared by the I-T department highlights the unlawful payment of extra commissions to agents selling insurance policies, surpassing the permissible limits set by regulations.
 
The I-T department estimates the benami amount—the quantum of excess, unauthorised payment - to be more than Rs25,000 crore, sources told ET.
 
The probe began after the I-T department investigation wing submitted a report on its findings suggesting the need for a detailed probe under the Benami Transactions (Prohibition) Act, 2016 (PBPT) against the intermediaries. 
 
Last year, according to another report from ET, investigators from the tax department scrutinised transactions of over Rs60,000 crore and also investigated suspected evasion of goods and services tax (GST) exceeding Rs5,500 crore. Initially, the I-T department was probing more than 20 insurance companies and about 500 entities linked to their sales agents. But the line of investigation shifted to banks after the probe allegedly revealed voluminous transactions demanding a further explanation, the newspaper says. (Read: Insurance Commission: I-T Dept's Investigation Against Insurers Widens to Banks, says Report)
 
Last year in March, the Insurance Regulatory and Development Authority of India (IRDAI) lifted limits on the payment of commissions to insurance intermediaries. According to new rules, the earlier cap on commission payments is now replaced with an overall cap on the expenses of insurer management. 
 
According to Shrirang Samant, who worked in senior leadership roles in the general insurance industry, the issue is not the payment of a commission but the way it was being routed to the recipients. Mr Samant wrote an article in Moneylife ‘Demystifying Regulatory Changes in Insurance Commissions’ in which he shared his views on the IRDAI rules and the newspaper report. 
 
Talking about the news report that time, he asks how this alleged evasion came about. "The genesis lies in the regulatory caps on payment of commission—until now, the regulator laid down the commission caps for various classes of insurance products. The fact was that these caps served as the floor for commission payments rather than the ceiling, which was the intention."
 
Distributors of insurance products, be they brokers or agents, used their market access to demand ever higher commissions from insurance companies, he says, adding in their initial frenzy to acquire and grow market share, insurance companies had to give in to these demands. 
 
Official sources told the newspaper that many insurance companies are paying overriding commissions to banks and other intermediaries on top of the legal commission which led to concerns over potential exploitation and a rise in management expenses within the insurance industry. "Banks that act as corporate brokers for insurance companies allegedly took the legal commission from these firms through legal channels, although the overriding commission was allegedly routed through various ways."
 
"The probe has found that the insurance companies, through the intermediaries, paid the manpower supply (also called payroll or employee) costs of the banks," the first official cited above told ET. "So, these expenses were never reflected in the books. If proven, this amounts to non-disclosure, which is a severe violation under the I-T laws."
 
Comments
r_ashok41
3 months ago
irdai needs to open the pandoras box
motorinsurancehyd
3 months ago
Still most of the companies are paying 30-70 % in many segments, no one can control them as premiums are decided that way that even after passing so much commisions they earns good amount. Who decides such premiums rates with such heavy margins is the main question here?
suriseetaram
3 months ago
This is making a mountain out of a mole hill.
IRDA is quite capable regulator to take care of such activities. Besides, as the reporter says this is only an estimate. Journalists.. as though they are sacred cows try creating some sensational news out of nothing. If it is a negative story more people get attracted to the inquisitive title or head(less) lines.
suriseetaram
3 months ago
This is making a mountain out of a mole hill.
IRDA is quite capable regulator to take care of such activities. Besides, as the reporter says this is only an estimate. Journalists.. as though they are sacred cows try creating some sensational news out of nothing. If it is a negative story more people get attracted to the inquisitive title or head(less) lines.
Kamal Garg
3 months ago
Even if extra commission is paid via different layers of intermediaries, if the intermediaries/agents/brokers show the same as their income and pay tax on that, what is the problem and how the entire transaction becomes benami.
Whether extra commission is permitted by IRDAI or not, is IRDAI's job and not the income tax's job.
Not able to fully comprehend the problem?
newsdailyradio
3 months ago
Today as we see many rich are selling asset to trust and give to charity. The greed for rich is over. People are clever. No time for the rich to hide. Work with loyalty
iaminprabhu
3 months ago
Pressure to grow business combined with Greed of Commissions, Bonuses with LEAST care for Ethics till they are CAUGHT by GOI or Rax authorities has become the norm to find all loopholes !

Unfortunately AUDITORS & Due Deligence is turn blind & once 1 Intermediary does the others blindly follow (its like if 1 vehicle breaks traffic rule, there will be 12 behind who follow yo break rules)
Pragna Mankodi
3 months ago
Insurance business, more particularly, General Insurance business is quite tricky. The penetration needs to be improved - there are opportunities and push by the govt and regulators to increase the coverage. As a result, there is insatiable appetite for payment of higher commission by the agents. In the process mis-selling takes place and customers are taken for a ride. Corporate Agency is also a big drain as the top bosses of the banks, till recently, were taken on foreign excursions for their \"performance\" of cross selling the insurance products. Where these money came from? Good that the agency is investigating. Hope, IRDAI will push the reforms in this important area towards their meticulous compliance and will not be content with just framing the rules/guidelines.
jathindram99
3 months ago
In recent years, there is a trend of raising insurance commissions, sometimes even reaching up to 60% of the premium. Anyone can see that this is unsustainable, and may soon become a big scam. There is a big potential for investigative stories on this.
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