Banks under scanner for inappropriate deductions

Concerned at the government's "revenue loss" due to giving "large deductions" while calculating the income tax payable by banks, tax authorities have decided to scan the accounts of lenders, including foreign banks, in minute detail.

Accordingly, the Central Board of Direct Taxes (CBDT) has asked its officials in the field to check every deduction claimed by banks 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 cuts 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, AO 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.