Tax authorities have sought to recover service tax of around Rs 300 crore from several insurance companies alleging that there have been disguised commission payments by life companies and no levy has been paid on it.

Life insurers have confirmed that there have been enquiries around commission paid to corporate agents. The tax demand comes at a time when the life insurance industry is in the doldrums and has been promised fiscal benefits by finance minister P Chidambaram in the form of tax breaks.

Insurance industry insiders feel that the recent high-profile penalties imposed by the insurance regulator on companies for overpaying commission could have triggered the action from the tax department. Typically, the income tax liability is on the corporate agent, but there are provisions under which the regulator can recover service tax from life companies.

This is not the first time that the insurance industry has fallen foul of the excise department. Earlier, the department had issued notices to third-party administrators for making payments to hospitals and other health service providers without deducting service tax on the payments. 

There have also been disputes on setting off service tax in the past. According to PTI, Birla Sun Life Insurance, ICICI Prudential Life, HDFC Life Insurance, Metlife Insurance and Reliance Life Insurance among others have been issued summons by Directorate General of Central Excise Intelligence (DGCEI), an intelligence arm under the finance ministry. The DGCEI has sought documents pertaining to sale of insurance policies and commission paid to field associates as part of its probe.

An email query seeking response from HDFC Life Insurance, MetLife Insurance, Birla Sun Life and ICICI Prudential was not answered.

However, a Reliance Life Insurance Company (RLIC) spokesperson confirmed receiving a letter from the department seeking information. "We understand that this is part of a process wherein the department has sought similar information from several other insurance companies. RLIC is in full compliance with applicable laws and regulations and will be providing the required information as desired," the spokesperson said. Preliminary probe so far has found alleged irregularities including evasion of service tax by misrepresenting the information on accounts book and fudging records related to commission paid to field associates, agents and brokers who were selling the insurance policies, sources said.