The insurance sector may soon come under the purview of service tax, after a FY12-13 CAG report pointed towards irregularities, wherein many insurance companies are said to have flouted tax rules.
The audit conducted had raised questions on a possible case of tax evasion, which is now being investigated by the service tax department.
According to the audit, many insurance companies wrongfully availed of the central value-added tax (Cenvat) scheme to avoid taxes on certain services like administrative ones and in case of life companies that give endowment policies.
Cenvat Credit is a scheme where the manufacturers or the output service providers are allowed a set off taxes paid on inputs.
The service tax department has now taken cognizance of this and will be sending show-cause notices to many big private and public insurance companies.
According to sources, TATA AIA has already received a show-cause notice and few other insurance companies may come under the scanner soon.
TATA AIA in an email has confirmed to CNBC-TV18 that they are examining the matter and will respond to the concerned authorities appropriately.
The company statement reads: "This follows a notice from the Commissioner of Service Tax, Mumbai, to Tata AIA Life Company Limited on the issue of proportionate reversal of Central Value Added Tax (Cenvat) credit attributable to premium exempt from service tax in respect of endowment policies. Tata AIA Life would like to clarify that we do not believe there has been any irregularity on the issue. We would also take this opportunity to inform that we are examining the matter and will respond to the concerned authorities appropriately. At Tata AIA Life Insurance, we follow strict ethical business standards, code of conduct and the guidance of good principles."
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