J&K Bank to Challenge Rs 8,330 Crore GST Demand Orders

Principal amount in dispute stands at Rs 8,330.87 crore across two separate demand orders. CBIC circular confirms notional interest under FTP is exempt from GST, removing tax liability uncertainty.

Reader Takeaway: Regulatory clarity on FTP mechanism removes a major contingent tax liability, strengthening the bank's balance sheet position.

What just happened

Jammu & Kashmir Bank has announced its intention to pursue the quashing of two major GST demand orders previously issued against it. This action follows the issuance of Circular No: 266/12/2026-GST by the Central Board of Indirect Taxes and Customs (CBIC) on October 28, 2026. The circular clarifies that notional interest recorded in books of accounts for loans and advances under internal Funds Transfer Pricing (FTP) mechanisms qualifies as interest, which is exempt from GST.

Why this matters

The bank was previously contesting two major tax demands: a Rs 8,130.66 crore order dated February 4, 2025, and a Rs 200.21 crore order dated March 23, 2026. These demands centered on whether internal funds transfers between the bank's branches constituted a taxable service. By confirming that these entries are non-taxable, the CBIC circular provides the legal grounds for the bank to resolve these massive outstanding disputes.

Risks to watch

While the circular supports the bank's position, the formal process of quashing the orders remains subject to legal and administrative procedures. Investors should monitor for confirmation from the High Court of Jammu & Kashmir and Ladakh regarding the final disposal of these cases.

What to track next

The next critical step involves the bank's formal filing to the appropriate tax authorities and the High Court to seek the final dismissal of the disputed demand orders based on the new regulatory guidance.