Insurance companies to now face GST dept's scrutiny for a possible evasion of Rs 824 crore

After detecting GST irregularities in multiple online gaming companies, the Directorate General of GST Intelligence (DGGI) has detected tax evasion of Rs 824 crore by 15 insurance companies, multiple intermediary marketing companies, multiple Non-Banking Financial Companies (NBFCs), and banks.

First, let's quickly understand how GST works: Say ICICI hires services of Mr Alok (the consultant), for say Rs 80; and they pay Rs 10 as GST on this (this Rs 10 is called Eligible GST Credit).

• In total, the company pays Rs 90 to Alok. 
• Now, say ICICI uses this service, makes it better, and sells it to their customers for Rs 200.
• When ICICI sells this service, they collect GST of say Rs 20 from their customer.
• But ICICI's actual GST liability is not Rs 20, since ICICI has to pay GST to the government only the value added by them and not on the money received by them. 
• So, ICICI's actual GST liability is based on its value add of Rs 110 (Rs 200-90) and they need to pay GST of Rs 10 (20-10).
• When ICICI notes Rs 10 as GST paid, its called ''Availing GST'' and when they settle Rs 10 balance against Rs 20 collected, this is called ''GST Utilisation''.  

Now, what really happened here?

• The Mumbai unit of the DGGI received specific information that ICICI Prudential Insurance had availed ineligible credit. What it means is that they had taken credit of GST on bills they had paid. This was wrong as per the DGGI because ICICI paid GST on ''fake bills''.  
• When the DGGI investigated the matter, they found that 15 companies apart from ICICI Prudential had similarly availed ineligible GST credit and paid fake bills, since the insurance companies had several common intermediary marketing companies.
• The insurance companies had agreements with these marketing companies for fake ''marketing services'' and these companies then submitted fake bills for payments. The insurance companies would show these as legit expenses, pay GST on them, and take credit in their books. 
• Worse, the companies have been doing this since 2017, the time when GST became applicable. 
• GST officers have detected Rs 824 crore tax evasion by insurance companies, of which ICICI seems to have paid Rs 100 crore without having received any services. 

Though the GST fraud that multiple online gaming companies have been accused of seems to be based on genuine confusion on GST rates and valuation, it looks like the ones by insurance companies are systematically planned. We can only hope that they are insured against such risks themselves.