Several banks have received goods and services tax (GST) notices for using their brand name by their branches and subsidiaries. This follows a recent ruling by the Authority for Advanced Rulings (AAR) of Tamil Nadu, Maharashtra, and Karnataka, which said that each entity in a bank with a separate GST number is considered a distinct entity for tax purposes.
The tax authorities believe that the brand name is a free service provided to related parties and is therefore subject to GST. This has created uncertainty for banks, as their brand name is also used by other businesses within their group, such as mutual funds and insurance companies.
Experts say that this poses two challenges for banks. First, they will need to calculate the value of their brand name, which can be difficult. Second, they are not eligible to claim a full input tax credit (ITC) for the GST paid on the use of their brand name.
Under GST rules, banks and non-banking financial companies (NBFCs) can only claim a 50% ITC on services and capital goods. This means that if the use of the brand name is subject to GST, banks can only claim half of the GST paid as input credit. In most other sectors, firms are eligible for a full ITC.
The issue of whether the use of a bank’s brand name by its group companies constitutes a supply or an inherent function of the holding company is open to interpretation. The Central Board of Indirect Taxes and Customs should issue a clarification to avoid litigation.
