Want to save insurance premium? How companies are selling plans at pre-GST rates

Insurance agents are often known to mislead customers, but that's a practice that usually only exists at the level of an insurance agent.

However, the launch of the Goods and Services Act appears to have brought agents and insurance companies on the same page in an attempt to boost sales.

Corrupt practices

According to an audio recording received by Catch, an agent of an insurance company tried to sell an insurance plan to a prospective customer with the promise that he would take a backdated cheque that would allow him to evade the increased cost of the plan due to the new rates of GST.

Before 1 July, when the GST came into force, insurance plans came under the tax rate of 15%. It is now 18%, which is a 3 percentage point increase.

In the audio recording, an insurance agent is heard trying to persuade a customer to purchase an insurance plan over the next two days to be able to take benefit of his company's scheme of selling backdated insurance plans, which will reduce the cost of premium on the plan.

In the recorded call the insurance agent is heard telling the customer to invest a minimum amount of Rs 20,000 on the suggested which can later be topped up at the pre-GST rate. The insurance agent is heard telling the customer on phone that the company, for which he is selling the plan, has allowed selling backdated insurance plans till 10 July.

Since Catch cannot independently verify the authenticity of the call, the name of the company that the agent represents are not being mentioned. In the call, the agent also misleads the customer by telling him that before the enactment of the GST law, insurance plans were taxed at 4%. Insurance plans, before GST were taxed at 15%.

Indian jugaad in action

There have been reports of companies as well as traders using various kinds of jugaad to bypass new GST rates. An Economic Times report published on 8 July cites an example of a Chennai-based shopkeeper who is splitting the bill for a pair of shoes by selling each separately. The same report also reports how a garment dealer is selling the dupatta separately from the salwar suit.

The government has created multiple tax categories within the GST to differentiate between products bought by people from lower middle and the affluent classes.

Footwear below Rs 500 attract GST of 5%, while those above that cost are charged 18%. Therefore, a shopkeeper can reduce the cost of footwear worth Rs 800 by selling its pair in two parts.

Similarly, apparel under the GST is taxed at 5% if priced below Rs 1,000 and 12% if above that. So by selling the salwar kurta and dupatta separately, shopkeepers are reducing the cost of a dress, making the final bill chargeable at 5% tax.

Given the government's efforts to ensure tax compliance by individuals as well as businesses, it would be interesting to see how government deals with such innovative tricks to evade taxes.