The Directorate General of GST Intelligence (DGGI) has been investigating these companies for allegedly floating shell companies to pay high commissions and accounting for the payments under other heads to reduce tax outgo. During its probe, the Mumbai unit of DGGI conducted inspections on some companies and also summoned their executives, the people said.

Insurance industry executives, though, said GST authorities had wrongly interpreted marketing and sales-related expenses as commission on services and were seeking tax. Some of these insurance companies have approached the finance ministry seeking a resolution to what they view as legal differences on the interpretation of the GST statute, industry insiders said.

According to a senior government official, the probe has revealed that some companies pay as high as 70% commissions to agents, even though it is ordinarily around 15% in the sector.

The department is probing transactions of these firms running into more than ₹5,000 crore and involving GST of over ₹500 crore. “In certain cases, they have also confessed to the wrongdoing,” another official added.

“The issue is about interpretation and since it's a GST issue, the finance ministry was approached. Tax authorities have slapped huge claims on insurance companies because they interpret marketing and sales-related expenses as services and are seeking tax on those,” said a senior insurance executive. “From insurance companies' perspective, these are necessary expenses to sell products and not taxable. The finance ministry officials have been very receptive and assured to look into the matter,” the executive said.

Insurance industry insiders told ET that the companies have already paid crores of rupees in taxes “under protest”.