CAG finds ₹74,766.39 crore probable tax loss from bank and NBFC exemptions

Who it concerns: Union Government, Department of Revenue – Direct Taxes (Income Tax Department), concerning assessments of Public Sector Banks, Private Sector Banks, Foreign Banks, and NBFCs.

What the auditor found

• Probable tax implication of ₹ 74,766.39 crore identified across 1,847 audit observations.
• Excessive deductions for bad debts resulting in a probable tax implication of ₹ 33,459.08 crore.
• Excessive deductions for provisions for bad and doubtful debts resulting in a probable tax implication of ₹ 2,971.26 crore.
• Excessive deductions for special reserves resulting in a probable tax implication of ₹ 531.18 crore.
• 127 cases where banks/NBFCs allowed write-offs of bad debts totaling ₹ 40,178.47 crore without the borrower's PAN.
• 58 cases where bad debts of ₹ 1,69,782.47 crore were allowed as a deduction without any borrower information.
• 52 instances where banks offered only ₹ 2,098.35 crore to tax against actual recoveries of ₹ 14,303.00 crore reported to the RBI.
• 36 cases of NBFCs where interest on Non-Performing Assets (NPA) was not taxed on an accrual basis.
• Deficiencies in internal audits amounting to ₹ 3,773.39 crore across 290 cases where the Department conducted internal audits.
• Ambiguity between Income Tax Rules (6 months for NPA) and RBI guidelines (3 months) leading to tax disputes.

Also in the document

• CAG identified a total probable tax loss of ₹ 74,766.39 crore due to systemic and compliance issues in bank and NBFC assessments.
• CAG found that in 52 instances, banks reported recoveries of ₹ 14,303.00 crore to the RBI but offered only ₹ 2,098.35 crore to the Income Tax Department.
• CAG noted that 127 cases involved bad debt write-offs of ₹ 40,178.47 crore where the borrower's PAN was not provided, violating Section 139A mandates.
• CAG observed that internal audit information was available for only 1,110 out of 2,378 sampled cases, with deficiencies found in 123 instances.