Skip to main content

Banks, insurance companies under lens for inflated tax credits

Banks, insurance companies under lens for inflated tax credits
The government is keeping a watch on some banks, insurance companies and technology and telecom firms after it announced that errors in tax credit claims should be rectified, according to two people aware of the matter.
"There are instances where the transitional credit has jumped by more than 50% from the period before GST (goods and services tax). The government want these companies to return transitional credit either erroneously claimed or inflated," one of the persons said, requesting not to be named. A few companies in FMCG and consumer durables sectors are also under the scanner, the person said.
Tax credit is the amount that can be set off against a taxpayer's liability. When India moved to GST, many companies faced a situation where they had paid tax on old stock and availed credit but had to now set it off against the GST liability. Transitional credits are tax credits accumulated before July 1on pre-GST stock. According to the GST law, the credit can be set off against GST liability.
However, some tax experts pointed out that in several cases the jump in transitional credit could be genuine. "Several businesses are evaluating the transition credits taken and whether there is any need to revise the credits in either direction. Many businesses have rightfully availed large credits, as permitted by the legislation, and it is necessary for them to provide adequate documentation and linkages in order justify that it is appropriate," said MS Mani, partner, Deloitte India.
Under current rules, banks, insurance, telecom and technology companies can now seek tax credit even on capital expenditure — there was no such concept earlier for services — and use that to offset their GST liability.
"Many banks and companies had put their expansion plans on hold until GST was rolled out July 1 to benefit from input credit," said one of the persons quoted earlier. This has resulted in a huge surge in credits claimed by such banks and companies. In many cases — mainly for telecom companies — some machines, technology was already bought before GST was rolled out, but not shipped to India. "Such goods were brought on the balance sheet only after GST, to claim credits," he said.
Legal experts ET spoke with said several companies would want to avoid changing the transitional credit data as it could put them in a tight spot. "If a company revises the transitional credit number, it could be construed as admission of guilt, so most companies may not revise the credit details unless there is a blatant error. The government could issue show-cause notices to companies which may have taken high transitional credit and can levy penalty and interest and seek reversal of transitional credit," said Abhishek A Rastogi, partner, Khaitan & Co.
According to some officials, who did not wish to be identified, the government is looking to issue show-cause notices by January next year to companies if transitional credit numbers are not revised."The government views transitional credit as leakage of tax. The worry in the government is that in the coming months, credits on excise, service tax and VAT would also be given to companies," said a person close to the matter. "The bigger worry is, if states have a shortfall (in their tax collections), the Centre is required to compensate it. All this would happen just before the budget," he said.
The Economic Times, New Delhi, 14th December 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …