Jammu and Kashmir Bank Limited provides a regulatory update regarding GST treatment of Fund Transfer Pricing (FTP) mechanism transactions. This disclosure is made in continuation of previous letters dated 05.02.2025 and 24.03.2026.

GST Demand Proceedings

The Bank had previously disclosed that GST authorities initiated proceedings against the Bank in relation to FTP transactions, resulting in two specific demand orders:

1. Order dated February 04, 2025: Issued by Joint Commissioner, Central GST Commissionerate, Jammu for GST liability of ₹81,30,66,42,768 (Rupees Eight Thousand One Hundred Thirty Crores Sixty-Six Lacs Forty-Two Thousand Seven Hundred and Sixty-Eight Only) with applicable interest and equal penalty of ₹81,30,66,42,768.

2. Order dated March 23, 2026: Issued by Additional Commissioner, Central GST Commissionerate, Jammu for GST liability of ₹200,20,80,009.00 (Rupees Two Hundred Crores Twenty Lakh Eighty Thousand and Nine Only) with applicable interest and equal penalty of ₹200,20,80,009.00.

Legal Challenge and Interim Protection

The Bank challenged these proceedings before the Hon'ble High Court of Jammu & Kashmir and Ladakh and obtained interim protection in respect of both demand orders.

CBIC Circular Clarification

The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No: 266/12/2026-GST dated 28th October, 2026, which provides clarification on GST treatment of FTP mechanisms in banks. Key points from the circular include:

  • The circular addresses whether GST is applicable on notional interest recorded in Books of Accounts by Head Office when funds are notionally transferred between branches through Head Office
  • FTP is described as an internal funds allocation and performance measurement mechanism used by banks for evaluating performance of different branches or business units
  • The circular clarifies that the notional amount/interest recorded against the activity of making a loan or advance under FTP mechanism is covered by the definition of "interest" for exemption purposes under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
  • This clarification was made based on recommendations from the 57th meeting of GST Council
  • The circular states that such notional amount represents the cost of funds and is akin to interest, falling under the exemption for interest payable in any manner in respect of moneys borrowed or debt incurred

Bank's Position and Next Steps

The Bank has consistently maintained that the relevant book entries represent notional interest arising from internal FTP mechanism for banking operations, and that such amounts are in nature of interest exempt from GST. This stance has now been validated by the CBIC circular.

In view of this clarification, the Bank will pursue the matter with appropriate authorities for quashing of the aforementioned demand orders, in accordance with applicable provisions.