Equitas Small Finance Bank has received a show-cause notice from Tamil Nadu tax authorities for Rs 533.81 crore regarding GST liability for FY 2022-23. The dispute centers on the taxability of interest income from loans, which the bank maintains is exempt under existing GST notifications. Management is actively contesting the notice, citing historical favorable assessments as a primary defense. This demand is currently at the show-cause stage and has not yet become a crystallized financial liability for the bank.
Equitas Small Finance Bank Faces Rs 533.81 Crore GST Demand
Total proposed demand: Rs 533.81 crore | Interest income tax dispute: Rs 479.33 crore.
Reader Takeaway: Bank contests large tax demand citing previous favorable assessments; currently a show-cause stage, not final liability.
What just happened
Equitas Small Finance Bank Limited has received a show-cause notice (SCN) from the Office of the Deputy Commissioner (ST), Government of Tamil Nadu, dated September 19, 2026. The tax authorities have proposed a total demand of Rs 533.81 crore for the financial year 2022-23. This includes a tax demand of Rs 485.18 crore, interest of Rs 0.01 crore, and a penalty of Rs 48.52 crore.
Core Issue: Interest Income Taxability
The bulk of the dispute, totaling Rs 479.33 crore, arises from the tax department’s move to disallow exemptions on interest income earned from loans and advances. The bank contends that this income is exempt under Entry 27(a) of Notification No. 12/2017-Central Tax (Rate). The SCN also lists several other technical issues including alleged short payments on outward supplies, discrepancies in turnover, and issues related to Input Tax Credit (ITC) utilization.
Management Position
Equitas management maintains that it has followed statutory tax treatment consistently. The bank points out that previous years' assessments were finalized without labeling this interest income as taxable turnover. Consequently, the bank believes it has strong legal grounds to challenge the SCN and intends to submit a detailed reconciliation response to the authorities. The bank reiterated that the notice is not a final order and does not represent an immediate cash outflow.
Risks to watch
Investors should monitor the progression of this litigation. While the bank is confident in its legal stance, the sheer size of the demand relative to operational scale makes it a significant regulatory risk. The final outcome depends on the adjudication process, which may take time to resolve.