Equitas Small Finance Bank has received a show-cause notice from the Tamil Nadu Goods and Services Tax department proposing an aggregate demand of ₹533.81 crore for the financial year 2022-23. According to the bank's regulatory filing on Tuesday, the notice was received on September 21 from the Deputy Commissioner (ST), Central-III Zone, Commercial Taxes Department, Government of Tamil Nadu. The proposed demand comprises ₹485.18 crore in tax, ₹11.11 lakh in interest and ₹48.52 crore in penalty.
A significant portion of the proposed tax demand relates to the GST authority's proposed disallowance of exemption on turnover. As reported by the bank, ₹479.33 crore of the proposed tax demand substantially relates to interest income earned from loans and advances. The bank maintains that interest or discount earned on deposits, loans and advances is specifically exempt from GST under Entry 27(a) of Notification No. 12/2017-Central Tax (Rate), issued under the Central Goods and Services Tax Act, 2017, except interest associated with credit card services. The bank has consistently followed this treatment and prior year assessments were completed without treating the relevant exempt interest income as taxable turnover.
The SCN raises multiple issues beyond the interest income dispute, including short payment of tax on outward supplies, alleged suppressed turnover, short payment under reverse charge, credit notes, inter-State branch transfers, rate differences, excess input tax credit (ITC) and ineligible ITC. According to the bank's filing, it has substantive factual and legal grounds to contest the matters raised in the notice and will submit a detailed response along with relevant reconciliations and supporting documents within the prescribed timeline.
At 1:20 PM, Equitas Small Finance Bank share price was trading 0.19% lower at ₹72.30 apiece on the BSE. The bank emphasised that the notice is only at the show-cause stage and does not constitute a final adjudication or crystallised liability. It added that the financial impact, if any, will depend on the outcome of the proceedings and cannot be determined at this stage.
