Bajaj Finance Faces Rs.341 Crore GST Evasion Notice from DGGI

Bajaj Finance, India’s largest consumer finance non-banking financial company (NBFC) with assets under management of Rs.3.54 lakh crore, has been issued a show-cause notice by the Directorate General of Goods and Services Tax Intelligence (DGGI). The notice, dated August 3, 2024, alleges that Bajaj Finance evaded Rs.341 crore in taxes by misclassifying a taxable service charge as a non-taxable interest charge.

Issue in Hand

The crux of the issue revolves around the company’s practice of charging ‘upfront interest’ to customers who take loans to purchase items from stores. According to the DGGI, this ‘upfront interest’ should be classified as a taxable processing fee or service charge. However, Bajaj Finance has categorized it as an interest charge, which is exempt from GST under central tax rules.

Details of the Investigation

The investigation, which began in August 2022 following an inspection of a ‘myG’ retail outlet in Kozhikode, Kerala, revealed that Bajaj Finance had consistently charged this ‘upfront interest’ regardless of the loan amount, similar to how a service charge is applied. The DGGI’s probe extended to 65 offices of Bajaj Finance, culminating in the inspection of the company’s office in Pune’s Viman Nagar in July 2024.

Penalties & Implications

The notice indicates that Bajaj Finance could face a total financial penalty of around Rs.850 crore. This includes a 100% penalty on the alleged Rs.341 crore tax evasion, an additional Rs.150 crore in interest, and a daily interest charge of Rs.16 lakh until the payment is completed.

Conclusion: In conclusion, Bajaj Finance is under intense scrutiny as the DGGI accuses the company of evading GST by wrongfully classifying a service charge as an interest charge. With everything at stake, the outcome of this case could have major implications for Bajaj Finance as if found liable, it may face not only hefty penalties but also a potential impact on its reputation and operations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.