Bank accounts under lens for tax deductions

Concerned about the “revenue loss” incurred by the government due to the “large deductions” made while calculating the income tax payable by banks, tax authorities have decided to scan the accounts of lenders in minute detail.

Accordingly, the Central Board of Direct Taxes (CBDT) has asked its officials to check every deduction claimed by banks, including foreign ones, against each claim.

The CBDT action has been prompted by a recent assessment of banks carried out by the Comptroller and Auditor General (C&AG).

“It has been observed that while computing the income of banks under the head ‘profit and gains of business & profession’, deductions of large amounts under different sections are being allowed by the assessing officers without proper verification, leading to substantial loss of revenue,” the CBDT said in a letter to tax officials.

Under the provisions of the Income Tax Act, banks are allowed to claim certain deductions.

Among deductions that caused the revenue loss are reductions claimed by foreign banks on head office expenses while the tax officials have been asked to carefully examine the overseas banks’ accounts.

“In cases of foreign banks or bank branches assessable in India, the officer should carefully examine the claim for head office expenses...,” the instructions to the officers stated.

Besides, the taxman has been asked to scan the accounts of the lender with regard to bad debts, benefits availed for being a rural branch of the bank and interest on purchase of securities by a bank.

“It is, therefore, necessary that assessments in cases of banks are completed with due care and after proper verification,” CBDT pointed out.

Meanwhile, it was also found that banks were claiming deductions on expenses not yet done by the bank. Contingent liabilities, the letter said, are not a part of deductible expenditure.

“It has been found that banks are claiming provisions on different accounts, probably under the RBI guidelines (for instance, provision for wage arrears for which negotiations are yet to be finalised and provisions for standard assets).”