In the wake of confrontations with income and service tax authorities last year, insurers and their agents are now facing the implications of the stringent benami law.
In the past week, several companies serving as agents and marketing intermediaries for insurance firms have reportedly received notices under the Benami Transactions (Prohibition) Amendment Act, 2016. Allegedly, these notices are linked to accusations of manoeuvring funds to bypass regulatory frameworks.
According to sources, at least six firms have been issued notices, compelling them to provide transaction details with specific parties under section 19 of the Benami Act, 1988.
The benami transactions under investigation involve instances where certain intermediaries may have acted as conduits, facilitating the passage of inflated commissions from insurance companies to their official agents. This scrutiny by the Income Tax department is driven by suspicions that these intermediaries were utilised to sidestep regulations and reward agents beyond permissible limits in the highly competitive insurance market.
Last year, the insurance sector faced scrutiny for allegedly paying commissions to agents exceeding the limits stipulated by insurance regulations.
The ongoing cases are at different stages of adjudication, with the income tax department’s investigation reportedly uncovering evasion of more than Rs 15,000 crore involving over 25 insurers and 250 businesses used for routing commissions to agents.
Benami Law
The term “benami” refers to a transaction in which the real beneficiary conceals their identity, posing challenges for regulators aiming to ensure transparency and fairness in financial dealings.
The Benami Transactions (Prohibition) Act, 1988, was the initial legislation targeting such transactions. However, recognizing the need for a more robust legal framework, the Benami Transactions (Prohibition) Amendment Act, 2016 was enacted. This amendment expanded the scope of benami transactions and introduced stringent provisions to deter individuals from engaging in such practices.
Real estate transactions have been a significant target for benami law enforcement. The legislation aims to curb the use of benami transactions in property deals, promoting transparency and fair practices in the real estate sector.
While benami laws are crucial for preventing tax evasion and ensuring a fair financial system, challenges and controversies surround their implementation. Interpreting the nuanced aspects of property transactions and proving the intent behind them can be complex, leading to legal disputes.
Experts suggest that the recent income tax notices under the Benami Property Act target assessees who have already been assessed under section 68 of the Income Tax Act, 1961 for specified amounts. The central question now revolves around determining whether these amounts can be classified as ‘benami’ as per the Act’s definition and whether a property transfer has occurred.
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