Bajaj Finance Hit with ₹341 Crore GST Notice for Alleged Tax Evasion, Faces Hefty Penalty

Bajaj Finance has been issued a notice by the Directorate General of Goods and Services Tax Intelligence (DGGI), accusing the company of evading taxes by incorrectly labeling a service charge as an interest charge. The notice, dated August 3, alleges that the company wrongly classified service fees as interest to claim tax exemptions.

According to reports, Bajaj Finance could face a total penalty of around ₹850 crore. This includes a 100% penalty on the alleged ₹341 crore tax evasion, ₹150 crore in interest, and a daily interest charge of ₹16 crore until the payment is made. The period in question spans from June 2022 to March 2024.

What’s the Issue?

The issue revolves around ‘upfront interest’ charged by Bajaj Finance on loans for store purchases. The DGGI claims this charge should be considered a taxable processing fee or service charge, but Bajaj Finance categorized it as non-taxable interest. This led to the accusation that the company failed to assess and pay the correct GST.

The investigation began after a 2022 inspection in Kerala. Officials examined the charges at a Kozhikode outlet of the ‘myG’ retail chain and discovered that ‘upfront interest’ was applied similarly to a service charge, regardless of the loan amount. GST officials then inspected Bajaj Finance’s Pune office and summoned company executives for further details.

The notice mentions that 65 offices of Bajaj Finance applied this ‘upfront interest’ charge to customers.