The service tax department is all set to recover around Rs 600 crore in tax – pending since 2009 – from 30 foreign banks operating in India. The department is likely to slap these banks with tax notices in a week.
The service tax department is all set to recover around Rs 600 crore in tax – pending since 2009 – from 30 foreign banks operating in India. The department is likely to slap these banks with tax notices in a week.
The move follows the strongly-worded message from finance minister Arun Jaitley. "What is due must be paid; India is no tax haven," he had said.
"The service tax payment is on the expenditure incurred by the head offices of these foreign banks with domestic branches in India. The service tax liability on an average stood at Rs 20-30 crore per bank," a senior official with service tax department told dna.
"For the past one month, we are probing several leading foreign banks. We have sought all the documents related to their headquarter expenditure and tax returns filed by the respective banks," the official added.
According to the sources, most foreign banks have opposed to the levy saying no entries have been made in their records on head office expenditure, and therefore are not liable to pay service tax.
But according to taxman, if Indian subsidiary claims an income-tax exemption on the expenditure incurred by head offices, then foreign banks should also be paying service tax under the reverse charge mechanism.
Under the reverse charge mechanism, service tax is payable – in full or part – by service provider, depending on the nature of services received. (If full service tax is to be paid by service receiver, then it is called fully reverse charge concept. If partial service tax is payable by service receiver and service provider, then it is called partial reverse charge concept.) "In this case, the Indian subsidiary has to pay full service tax, since 2009," said the source.
Foreign banks have never accounted for the head office expenditure in their India books. But now, they have to pay the taxes retrospectively.
While presenting Budget 2015, the finance minister hiked the service tax to 14%, However, the old rate of 12.36% is still applicable.
In the dock
There are around 50 foreign banks operating branches in India. These include Standard Chartered Bank, Citibank, Barclay's Bank, Royal Bank of Scotland, Deutsche Bank, First Rand bank, Bank of America and JP Morgan Chase Bank, among others. It is not clear, as of now, which all banks figure in the department's list.
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