I-T sources said the insurers have reported huge losses in their respective pension schemes. But the department has reasoned that under Section 10 and Section 80CCC of Income tax Act, the pension schemes are exempt from tax only if they make a profit under the schemes.
Further, the department's argument is that these companies have run up huge losses under these schemes only because they have been offering assured returns to subscribers.
Therefore, the department's contention is that tax breaks under Section 80 CCC should not be granted to such pension schemes.
This is but one part of the I-T department's close scrutiny of the working of life insurers. The department plans to reopen the assessment of all private life and non-life insurance companies for earlier years, as it feels that the losses reported by these companies were "exaggerated".
Except for the public sector major Life Insurance Corporation, most of the insurers have recorded losses till date.
The I-T department said the insurance companies reported losses only because they set off provisions for shoring up their solvency margins against their income. The department is now contesting the set-off.
Every insurance company has to make provisions, out of its income, to shore up its solvency margin, according to the norms of the Insurance Regulatory Development Authority.
If the I-T department succeeds in its contention that a provision is not an expense and, therefore, not eligible to be set off against the year's income, the insurance companies' losses will be vastly reduced.
The companies' tax liability will go up. "It will have an impact on the capacity of the insurance companies to pay bonuses and dividend thereafter as the payment has to be made out of their own resources," a top I-T source said.
The source said most private insurers have not furnished their actuarial reports "to avoid showing the real extent of their losses and income."
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