Central Board of Indirect Taxes and Customs (CBIC) has directed some major banks such as SBI, ICICI, Axis, HSBC, that if a mutual fund unit uses any brand components, it should pay royalty or similar fees to the parent and 18% GST has to be paid on that amount, said people with knowledge of the matter.
As some top financial institutions have come under the taxman’s lens GST on royalty from subsidiaries for use of the parent’s brand name, logo, or tagline. Currently, most banks either do not charge royalty or get paid a fixed amount, which is set to be challenged by the taxman, said people with knowledge of the matter.
However, a transaction between related parties, a company and its subsidiary, is liable even if there is no consideration paid under GST rules. Additionally, the tax department is arguing that there is a ‘supply’ taking place between the custodians of the brand – the bank – and its related party, or its subsidiaries including mutual fund houses. As per GST law, ‘supply of brand’ is deemed to have taken place from the parent company to the subsidiary, which is a related party.
Further, the I-T department has asked another large private bank to provide audited balance sheets for 2018 to 2021, along with information about joint ventures, associated companies and total annual income of each of these. The bank charges around Rs 2 crore annually from some of its subsidiaries as royalty or fees to use the brand name and logo.