Hyderabad income tax raids uncover kickbacks in loan sales practices

Income tax authorities recently conducted raids on a direct selling agent (DSA) in Hyderabad, who assists with loan acquisitions for Non-Banking Financial Companies (NBFCs) and private banks. The investigation has revealed possible kickbacks to bank and company executives, prompting calls for a broader examination of industry practices, ToI reported on September 30.

The DSA, generating an annual revenue of approximately Rs 1,000 crore through commissions, was found to be reporting unusually high expenses, catching the attention of tax officials, ToI’s report (by Sidhartha) said. These expenses were documented as non-salary expenditures to reduce tax liabilities. Typically, salaries and staff incentives represent a significant portion of loan agents’ expenditures, with commissions reaching up to 2.5% of the loan value in some cases.

“The issue is being probed further to ascertain more detail,” the report said quoting sources.

Banks and NBFCs depend on a network of loan sales agents for business, rewarding them with fees or commissions. A recent increase in retail loans, such as for automobiles and homes, has led to concerns within the Reserve Bank of India (RBI). The RBI’s regulatory actions have slowed down the pace of such loans in recent months, due to concerns including loans issued without proper security.

The raids have raised suspicions that similar kickbacks might occur in credit card acquisitions and insurance, sectors that have come under scrutiny in the past. Part of the commissions earned by loan agents or auto dealers may be shared with customers in the form of discounts, especially during periods of high sales. At such times, agents earn higher margins, potentially sharing some with bank or NBFC executives, sometimes in cash.

Source: The Economic Times