Indirect tax officials suspect that some of these companies may have claimed input tax credit on expenses incurred before the switchover to the GST regime in July 2017, said people aware of the matter.

Anumber of financial services companies are under the scanner as they are suspected to have falsely claimed goods and services tax (GST) input tax credit.

Indirect tax officials suspect that some of these companies may have claimed input tax credit on expenses incurred before the switchover to the GST regime in July 2017, said people aware of the matter. Some brokerages, banks, insurance companies and non-banking financial companies (NBFCs) are under the taxman’s lens, they told ET on the condition of anonymity.

The probe is at an initial stage and no notices have been served so far, said one of the persons. In most cases, the companies have claimed input tax credit, he said.

Input tax credit was not available to any services company on certain expenditures like buying furniture under the previous tax regime. Most firms would pay value added tax (VAT) on these expenses. Under GST, taxes paid on such expenses can be passed on to the customer and so input tax credit can be claimed.

“Service providers including financial services intermediaries were not entitled to VAT credits on goods during the erstwhile VAT regime, while being entitled to the same under GST. However, GST law mandates that such goods should have been received and used by the service providers after July 1, 2017. Hence, any attempt to obtain credit of goods procured before that date would be denied,” said MS Mani, partner, Deloitte India.

The tax department suspects that many firms had incurred certain expenses during their course of business expansion plans prior to launch of the GST regime but somehow convinced their vendors to raise the bills only after GST was launched, to specifically claim tax credits under the new framework.

Industry trackers said in all the cases under scrutiny, the tax department would be required to establish that GST input tax credit was wrongly claimed.

“Since VAT was payable on purchase of goods in the earlier regime for financial services companies without any provision for input credit... In any case, the amount of such credits may not be substantial for the department to waste its time,” said Sachin Menon, national head, indirect tax, KPMG India.

The tax department is crossverifying input tax credit claims against establishment licences, employees’ professional tax claims and challans. An establishment licence normally gives out dates when the business establishment may have started.

Employees’ tax returns also show the place where they operate from. This is being looked at to establish that the offices of these firms were operational, said the people cited earlier.

Many firms have claimed that they started operations before July 1, but did not buy furniture till then. The firms, banks and NBFCs that had gone for expansion in the past few years are under the taxman’s lens.