New Delhi. Equitas Small Finance Bank has received significant relief in a proposed Goods and Services Tax (GST) dispute relating to financial year 2022-23. The tax department has reduced the proposed demand from ₹533.81 crore to ₹23.95 crore. This represents a reduction of around 95.51% in the proposed liability. The revised demand comprises ₹21.67 crore in tax, ₹11 lakh in interest and ₹2.17 crore in penalty. The bank has said it will continue to contest the remaining ₹23.95 crore demand and submit additional documents and evidence in support of its position.
The dispute was primarily related to GST exemptions on interest income earned from the bank’s standard lending activities. The initial show-cause notice proposed a demand of around ₹533.81 crore. Of this amount, approximately ₹479.33 crore related to the tax department’s proposed disallowance of the GST exemption applicable to interest income from standard loans.
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The bank presented its case before the tax authorities during a personal hearing held on September 25, 2026. It submitted explanations and supporting documents concerning the statutory exemption applicable to interest earned from standard loans. Following the hearing, the tax department substantially revised the proposed demand, bringing the amount down to ₹23.95 crore.
The bank maintains that the remaining demand also relates to items that qualify for GST exemption. It plans to submit additional documents and evidence to support its claim. The final liability will depend on further verification and the subsequent proceedings before the tax authorities.
A significant part of the GST dispute concerns the interpretation and applicability of tax exemptions relating to interest earned on loans, advances and deposits. Under the relevant notification, interest or discount earned on loans, advances or deposits is exempt from GST subject to the applicable provisions. The bank relied on this statutory framework while presenting its case before the tax authorities.
The initial proposed demand of ₹533.81 crore represented a substantial potential financial liability for the bank. With the proposed amount now reduced to ₹23.95 crore, the potential exposure has fallen considerably. However, the reduction should not be treated as a complete closure of the matter, as the remaining ₹23.95 crore continues to be subject to the ongoing tax process.
The issue is significant for the bank because a large GST demand can potentially affect the financial position, earnings and capital planning of a financial institution. The substantial reduction in the proposed liability has lowered the immediate potential exposure, although the final outcome regarding the remaining amount is still pending.
Equitas Small Finance Bank has also taken steps to strengthen its capital position. On September 16, 2026, the bank’s board approved the issuance of up to 50,000 rated, listed, unsecured and subordinated Lower Tier-II non-convertible debentures with a face value of ₹1 lakh each. The proposed issue can aggregate up to ₹500 crore.
For the first quarter of financial year 2026-27, the bank reported net interest income of ₹1,029.59 crore and profit after tax of ₹183.61 crore. Against this backdrop, the reduction in the proposed GST demand from ₹533.81 crore to ₹23.95 crore represents a significant development in the bank’s tax-related proceedings.
The proceedings concerning the revised demand are not yet complete. The bank is expected to provide additional supporting documents and reconciliation records concerning the remaining amount. If the tax authorities accept the bank’s further submissions and supporting evidence, the proposed ₹23.95 crore demand could be revised further. If the remaining demand is sustained, the bank may have to meet the applicable tax, interest and penalty liability.
The difference between the original proposed demand of ₹533.81 crore and the revised amount of ₹23.95 crore is ₹509.86 crore. The tax department’s revision has therefore substantially reduced the potential liability. However, the reduction does not by itself constitute a final settlement of the entire dispute, and the bank’s further tax and legal proceedings regarding the remaining amount will continue.
The final impact of the matter will become clear after further action by the tax authorities and submission of additional evidence by the bank. For now, the proposed GST demand stands revised at ₹23.95 crore, comprising ₹21.67 crore in tax, ₹11 lakh in interest and ₹2.17 crore in penalty.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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