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

This performance audit examined the Income Tax Department's assessment of exemptions and deductions claimed by banks and Non-Banking Financial Companies (NBFCs) for financial years 2017-18 to 2021-22.

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

• 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.

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