Banks receive GST notices for use of brand name by branches, subsidiaries

New Delhi, Sep 15, 2023

Tax authorities believe that the brand name is a free service given to related parties and thus subject to GST

Several banks have started receiving goods and services tax (GST) notices for using their brand name by their branches and subsidiaries, Mint reported on Friday, citing people aware of the matter.

This comes after a recent ruling by the Authority for Advanced Rulings (AAR) of Tamil Nadu, Maharashtra, and Karnataka, saying that each entity in a bank with a different GST number will be considered a distinct entity for tax purposes.

According to the report, the tax authorities believe the brand name is a free service given to related parties and thus subject to GST. This has brought uncertainty in banks as their brand name is also used by their other businesses, like mutual funds and insurance, among other sectors.

The experts cited in the report said that this poses two challenges to the banks. One, they will have to calculate the value of their brand name, which is a challenging task. Second, they are not eligible to claim a 100 per cent input tax credit (ITC) for it.

According to GST rules, banks and non-banking financial companies (NBFCs) are eligible to claim only 50 per cent ITC against services and capital goods. If the use of the brand name is subject to GST, a bank can only claim half the GST as input credit.

For firms in most other sectors, GST laws allow 100 per cent 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.

[The Business Standard]