Banks, insurers face GST notices for fake payout

The Goods and Service tax (GST) authorities have issued show-cause notices to 29 insurance companies, a leading private bank, around five non-banking financial companies (NBFCs), and over 100 vendors. These entities were involved in paying for fictitious services to enable the insurers to pay a bank commission that was more than permitted under law.

An insurance company, which is part of the same group as a leading private bank, paid a significantly inflated commission to the bank by supplying them with office staff to sell their insurance policies to loan borrowers. The insurance company outsourced the management of payroll and manpower to a multinational company (MNC) and deployed them at various offices of the bank.

Another 28 private insurers are under investigation by the GST authorities for availing fraudulent input tax credit (ITC) for excess commission payments to finance companies for fictitious services by supplying manpower or by paying in kind. As against the permitted 15% commission, insurers have paid up to 70% of the first-year premium under various heads. The insurance company paid for the manpower utilised by the distributor but claimed ITC.