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State Bank of India (SBI) disclosed on March 20, 2024, that it received a tax demand order dated March 19, 2024, from the Income Tax Department. The total demand, including interest, is ₹63,375,252,550 for Assessment Year (AY) 2023-24.
The demand stems from disallowances made by tax authorities during assessment proceedings.
SBI intends to contest the order before appellate authorities within the given timeframe. The bank confirmed the order will not impact its operations.
Significance of the Demand
This large tax demand could be a significant liability for SBI if its appeal fails. It adds to concerns about recurring tax disputes, given the bank's history with similar challenges.
Past Tax Disputes
SBI, India's largest public sector bank, has a history of tax disputes. In a case from Assessment Year 2013-14, the Supreme Court upheld a ruling that classified SBI as an assessee in default for failing to deduct Tax Deducted at Source (TDS) for its employees.
Previously, SBI was involved in a large TDS dispute concerning the Site Restoration Fund (SRF) account maintained by ONGC, where tax, interest, and penalty stakes were estimated to exceed ₹1,000 crore for multiple assessment years.
Other public sector banks have also faced significant tax demands. Bank of India received a demand notice of ₹1,127.72 crore for AY 2016-17.
Group company SBI Life Insurance also experienced a substantial tax demand of over ₹5,000 crore for FY 2021-22. Though later significantly reduced through rectification, the company continued its appeal process.
SBI's Next Steps
SBI will begin its formal appeal process to challenge the Income Tax Department's order. The bank may need to make provisions in its financial statements based on the appeal's progress.
Potential Risks
The main risk is the financial impact if SBI's appeal is unsuccessful. Reputational risk and ongoing tax litigation are also concerns if these disputes persist.
Peer Demands
Bank of India's ₹1,127.72 crore demand for AY 2016-17 shows large tax liabilities are not uncommon for PSU banks. SBI Life Insurance has also faced significant tax demands, indicating a pattern in the financial services sector.
Financial Context
SBI's contingent liabilities were ₹27,42,584 crore as of Q3 FY26.
Investor Focus
Investors will watch SBI's appeal progress against the tax demand. Further communication on the grounds for disallowance and the appeal proceedings will be key. Successfully contesting this demand will be crucial for SBI's financial outlook.