Banks Seek Relief from GST Notices through a Specific Dispute Resolution Process

Banks Seek Relief from GST Notices through a Specific Dispute Resolution Process Banks have written the finance ministry, concerned about GST notices, to ensure that the GST does not apply to the imposition of penal interest imposed on the customer in the event of a default, delay in repayment, or non-compliance with loan conditions. Similarly, banks have urged the government, through the Indian Banks' Association (IBA), to establish a special dispute resolution mechanism, similar to the Committee on Disputes, with strict timelines for the completion of the appeal process to reduce litigation between the tax department and banks. The IBA has claimed that because most bank disputes involve large sums of money, they should not be treated the same as less important ones. While a June 2019 Central GST circular clearly stated that such additional interests will not be subject to GST, the IBA has alerted the Department of Financial Services (DFS) that authorities are still sending notices to banks in this regard. As a result, it has encouraged the government to make required changes to the rules and give relevant explanatory notes so that such notices are not issued in the future. This is one of a number of suggestions made by the IBA to the DFS ahead of the 2022-23 budget. Similarly, the IBA has sought clarification on who is responsible for paying GST on the sale of repossessed assets: banks or defaulters, particularly where the defaulters are GST-registered. The banks' association has also proposed that the government increase the amount of deductions for bad and doubtful loans made by rural branches from the current 10% of average advances under section 36(1) (VIIA) of the Income Tax Act of 1961. Given that banks engage in a variety of activities to promote digital banking and implement various government schemes to increase financial inclusion, the IBA is requesting some special incentives in the form of a special tax rebate/deduction or additional depreciation (for example, 125 percent) over and above the actual capital expenditure made on such activities. To reduce banks' compliance burden, the IBA has advised that the quarterly distribution of TDS certificates (Form 16A) be discontinued. Instead, the I-T department should enable them to be issued only once a year (like with Form 16 pay).