Income Tax Department has issued notices to a large number of insurance brokers and corporate agents, triggering fresh scrutiny across the distribution ecosystem. The action is primarily linked to overriding commission (ORC) payouts made before April 1, 2023, with authorities invoking Section 148 of the Income Tax Act to reopen past assessments.
According to sources, these notices fall within the extended 3-10 year reassessment window, allowing tax authorities to revisit older transactions where income is suspected to have escaped assessment. The current round of action is backed by a detailed investigation stemming from a search and seizure operation conducted on November 30, 2022, involving entities linked to the Wings Brand Group and Ajay Mehta Group.
At the centre of the probe is the alleged misuse of Middle Layer Business Entities (MLBEs), which investigators claim were used as conduits to route excess commission payments. Under existing IRDAI regulations, commissions payable on insurance products are capped. However, it is alleged that payments beyond these limits were structured through third-party entities to bypass regulatory restrictions.
Sources indicate that these MLBEs acted merely as pass-through entities, without providing any real services. Funds were routed from insurance companies to these intermediaries and subsequently transferred to agents, brokers, or their nominees. To legitimise these transactions, payments were often booked under heads such as marketing expenses, online advertising, business promotion, and brand-building activities.
The investigation has also been supported by data inputs shared from GST authorities, further strengthening the case for deeper scrutiny. In addition, cases have been flagged through the Income Tax Department’s INSIGHT Portal under high-risk parameters, indicating a data-driven approach to identifying potential tax evasion.
The scale of the probe appears significant. During post-search verification, as many as 37 entities were examined, with linkages found to around 32 insurance companies.
Industry participants suggest that while the introduction of the single-limit Expense of Management (EOM) framework was expected to curb such practices going forward, the current action focuses on historical transactions that predate these reforms. The reopening of past cases indicates that regulatory tightening alone may not be sufficient, and compliance lapses of the past are now coming under the scanner. Some large platforms are also believed to be under the lens, although there has been no official confirmation so far.
Source from: https://www.etnownews.com/companies/income-tax-notices-rock-insurance-distribution-ecosystem-orc-payouts-under-scanner-article-153982400
