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Banks receive GST notices for brand name use by branches and subsidiaries

Sep 15, 2023

By: BlinkX Research Team

Several banks have begun receiving goods and services tax (GST) notices for utilizing their brand name by their branches and subsidiaries, according to Mint, citing people familiar with the situation.

This follows a recent ruling by the Authority for Advanced Rulings (AAR) of Tamil Nadu, Maharashtra, and Karnataka, which stated that each entity in a bank with a different GST number will be treated as a separate entity for tax reasons.

The tax authorities believe the brand name is a free service provided to related parties and hence subject to GST, according to the report. This has caused concern for many banks because their brand name is also utilized by their other companies, such as mutual funds and insurance, among others. 

According to the experts cited in the report, this presents two challenges to banks. One, they will have to calculate the value of their brand name, which will be a difficult task. Second, they are not eligible for a 100% input tax credit (ITC) for it.

Banks and non-banking financial organizations (NBFCs) are only eligible to claim 50% ITC on services and capital goods under GST rules. If the usage of the brand name is subject to GST, the bank can claim only half of the GST as input credit.

In most other sectors, GST laws provide for 100% ITC.

"In the case of banks, where the logo or brand is used by their group companies, it is an interpretative issue, whether this constitutes a supply or is an inherent function of the holding company. To avoid litigation, it is recommended that a clarification is issued by the Central Board of Indirect Taxes and Customs," Saurabh Agrawal, tax partner, EY was quoted as saying in the report.