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With the advance tax deadline approaching fast, the income-tax (I-T) department has asked Punjab National Bank (PNB) about the treatment of Rs 129 billion, the amount involved in the letters of undertaking (LoUs) fraud, in its books, and the tax liability arising out of the scam.
I-T officials have questioned PNB Manging Director and Chief Executive Sunil Mehta and other officials to determine how the LoUs were recorded in the bank’s books.
“We are interested in PNB’s profitability. It is, after all, one of our largest taxpayers. We want to know how will it treat the Rs 129 billion in its books ahead of the fourth advance tax instalment,” said a senior I-T official.
Provisioning for Rs 129 billion worth of LoUs may affect the bank’s profitability and, in turn, the tax liability for the current financial year.
March 15 is the last date for payment of the fourth installment of advance tax for 2017-18. Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the fiscal year. The first installment is to be paid by June 15 (15 per cent), second by September 15 (30 per cent) third by December 15 (30 per cent) and then by March 15 (25 per cent).
About 45 per cent of direct tax revenue collection comes from advance tax, 35 per cent from TDS, 10 per cent from self-assessment and 10 per cent from recovery.
Banks that lent on the basis of LoUs issued by PNB have an exposure of around Rs 129 billion. LoUs are essentially bank guarantees that the bank undertakes to pay lenders in case of default by borrowers.
“Rs 129 billion will certainly have tax implication. If they claim it as a bad debt and provision for it, it will certainly have a big impact on the tax payable,” said the official. “What advance tax they will pay on March 15 is what we are examining,” he added.