Jammu and Kashmir Bank plans to pursue the cancellation of tax demand orders following a clarification from the Central Board of Indirect Taxes and Customs (CBIC) on the Goods and Services Tax (GST) treatment of internal funds transfer pricing between bank branches, according to a Reuters report published on TradingView on October 29, 2026.
The development relates to a long-running dispute over whether notional interest recorded under a bank’s internal funds transfer pricing mechanism should be treated as a taxable supply of services. The bank’s next step is to seek relief against the existing demand orders; the clarification itself should not be mistaken for confirmation that those orders have already been cancelled.
What Is the GST Dispute About?
Banks use funds transfer pricing (FTP) to allocate the cost of funds and measure the contribution of different business units, such as branches and treasury operations. These internal entries help banks assess lending, deposit-taking and investment activities.
The dispute concerns whether notional interest recorded through this internal accounting mechanism attracts GST when it is allocated between branches of the same bank. Such entries are distinct from interest earned through an ordinary loan or another transaction with an external customer.
Jammu and Kashmir Bank has previously challenged a major GST demand linked to its internal transfer pricing mechanism. Earlier reporting described the bank’s position that these entries are notional and are eliminated when the financial statements of the bank as a single legal entity are prepared.
CBIC Clarification Could Support the Bank’s Case
The CBIC clarification addresses the GST treatment of notional interest arising from funds transfer pricing between bank branches. The bank intends to rely on this clarification when seeking the quashing of the outstanding tax demand orders.
A separate report published on October 29 put the GST demands at approximately ₹8,330 crore. However, the amount cited in that report should be distinguished from the status of the bank’s legal challenge: seeking cancellation does not mean that the tax demands have already been withdrawn.
The final outcome will depend on the applicable legal provisions, the clarification’s scope and the decisions taken by the relevant tax authorities. Any formal cancellation would need to be confirmed through the appropriate orders or official disclosures.
Why the Issue Matters for Banks
The dispute has implications beyond one lender because banks commonly use internal funds transfer pricing systems to allocate funding costs and assess the performance of different business units.
Greater clarity on how these internal accounting entries are treated under GST could help financial institutions understand their compliance obligations and assess similar tax disputes. However, the effect on other banks will depend on the facts of each case and the precise scope of the CBIC clarification.
Financial institutions should continue to review their tax positions, documentation and regulatory disclosures in light of applicable guidance. Businesses seeking help with indirect-tax compliance can explore GST consultant services in India.
What Happens Next?
Jammu and Kashmir Bank’s reported plan is to pursue the quashing of the relevant tax demand orders. The key development to watch is whether the competent authorities formally withdraw or cancel those orders in response to the CBIC clarification.
Until such action is confirmed, the matter should be treated as an ongoing tax dispute rather than a settled liability or a completed tax relief measure.