Concerned about goods and services tax (GST) notices, banks have approached the finance ministry to ensure that the GST doesn’t apply to the levy of penal interest imposed on the customer in case of a default, or delay in repayment and non-compliance of loan conditions, sources told FE.

Similarly, banks, through the Indian Banks’ Association (IBA), have urged the government to set up special dispute resolution mechanism, along the lines of the Committee on Disputes, with strict timelines for the completion of appeal process to cut litigations between the tax department and the banks. Since most disputes relating to banks involve huge amount of money, they shouldn’t be treated on a par with less important ones, the IBA has argued.

As for GST notices, the IBA has informed the department of financial services (DFS) that while a June 2019 Central GST circular has amply clarified that such additional interests won’t attract GST, authorities are still issuing notices to banks in this regard. So, it has urged the government to tweak the norms appropriately and provide necessary explanatory notes so that banks are not subject to such notices in future.

This is part of a raft of suggestions submitted by the IBA with the DFS ahead of the Budget for 2022-23.

Similarly, the IBA has sought clarity as to who is liable to pay the GST on the sale of repossessed assets — banks or the defaulters — especially where the defaulters are registered under the GST framework.

The banks’ body has also suggested that the government raise the amount of deductions in respect of provision for bad and doubtful debts made by rural branches from the current 10% of average advances under 36(1) (VIIA) of the Income Tax Act, 1961.

Given that banks also resort to a lot of activities to promote digital banking and implement various government schemes to boost financial inclusion, the IBA is pitching for some special incentives in the form of special tax rebate/deduction or additional depreciation (say 125%) over and above the actual capital expenditure made on such activities.

The IBA has also suggested that the quarterly issuance of TDS certificate (Form 16A) should be scrapped now; instead, the I-T department should allow it to be issued only annually (as in the case of Form 16 – salary) to cut banks’ compliance burden.