Insurance agents have been served notices under the Benami Transactions (Prohibition) Amendment Act, 2016
In a significant revelation, the Income Tax (I-T) Department has uncovered a staggering Rs 25,000 crore benami deal within the insurance sector. The probe sheds light on the intricate web of transactions involving over 60 intermediary firms and hundreds of bank accounts, signalling a deep-rooted investigation into suspected illicit dealings between insurance agents and intermediary entities.
According to sources familiar with the matter, the investigation is 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, surpassing the permissible limits set by regulations, to agents selling insurance policies.
While the insurance companies were scrutinized last year by the I-T department, the current probe targets the intermediary entities facilitating the illicit transactions. It’s believed that the benami amount involved exceeds Rs 25,000 crore, indicating the magnitude of the investigation.
The modus operandi employed by the entities involved intricate maneuvers through multiple intermediary firms and bank accounts to obfuscate the money trail, making the investigation complex.
The initiation of the probe follows a detailed report submitted by the I-T department’s investigation wing, recommending further examination under the Benami Transactions (Prohibition) Act, 2016 (PBPT). This act empowers authorities to investigate and seize assets involved in benami transactions.
Under the scrutiny, insurers face the prospect of higher taxes, as the extra commissions paid cannot be claimed as deductions. Additionally, the amounts received by intermediaries are deemed as “unexplained income”, attracting tax liabilities.
While the investigation unfolds, insurance agents have been served notices under the Benami Transactions (Prohibition) Amendment Act, 2016, and are required to furnish details of transactions involving funds received from intermediaries.
However, legal experts anticipate challenges in proving benami transactions, citing the burden of proof on law enforcement agencies and the complexities surrounding factual and legal arguments.
Despite the ongoing probe, no regulatory actions have been taken against insurance companies thus far. The Benami law empowers authorities to provisionally attach funds linked to benami transactions, pending further investigation.
The transactions under scrutiny date back to before March 2023, coinciding with the transition from individual caps on commission payments to an overall cap on insurers’ management expenses.
In conclusion, the investigation into the suspected benami deals within the insurance industry underscores the need for rigorous oversight and compliance with regulatory frameworks to curb illicit financial activities.
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