The Indian Banks’ Association (IBA) is seeking a GST exemption on behalf of the banks due to increased Goods and services tax (GST) notices on loan defaults. IBA submitted a draft of suggestions with the Department of Financial Services (DFS) ahead of the Union Budget 2022-23.
Currently, there is a charge of GST on the penal interest imposed on banking customers for loan defaults, repayment delays, and non-compliance with loan conditions. The IBA informed the DFS that a CGST Circular issued in June 2019 clarified that GST would not be levied on such additional interests.
However, the authorities continue to issue GST notices to banks. So, it has requested the government to accordingly modify the rules and issue explanatory notes in this regard.
The IBA has also sought clarity on whether banks or defaulters, especially GST registered, are liable to bear the GST on selling any repossessed assets.
Next on the list, the IBA pointed out that most disputes involve massive spending. Hence, banks should not be considered at par with any other taxpayers. Accordingly, IBA has asked the government to set up a special dispute resolution mechanism, same as the Committee on Disputes.
It also wants rigid timelines for authorities to complete the appeal process. The move will reduce litigations between the banks and the taxman.
Moving onto the next, the IBA has also urged the government to scrap the issue of quarterly TDS certificates (Form 16A). The Income Tax department must instead allow Form 16A to be issued annually, just like Form 16 for salaried persons. It will cut banks’ compliance burden to a greater extent.
The banks’ association has also recommended that the government raise the deduction limit from the present 10% of average advances to provide bad and doubtful debts by rural bank branches under Section 36(1)(viia) of the Income Tax Act 1961.
Usually, banks also undertake promotional activities on digital banking and various government schemes for financial inclusion. Accordingly, the IBA seeks a few special incentives such as special tax rebates or deductions.
Additionally, the association expects an additional depreciation of around 125% over and above the current capital expenditure on such promotional activities.
The Union Budget 2022 is taking place on Tuesday, 1st February 2022, to be presented by the Union Finance Minister Smt. Nirmala Sitharaman. One must wait to see if some of these recommendations get picked up by the ministry.
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Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.