NBFCs likely to get tax treatment parity with banks

Feb 21 2013, 09:09 IST
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NBFCs are bank-like institutions with the exception that these do not offer savings accounts. (Reuters) NBFCs are bank-like institutions with the exception that these do not offer savings accounts. (Reuters)
SummaryNBFCs are bank-like institutions with the exception that these do not offer savings accounts.

and are becoming much more active on their collection cycles. But they are equally susceptible to what you would see on the banking side,Ē said Chandiramani.

Recently, the RBI working group on NBFCs led by former RBI deputy governor Usha Thorat had also mooted tax parity between NBFCs and banks by closing the regulatory arbitrage between banks and NBFCs. ďSuitable income tax deduction akin to banks may be allowed for provisions made under the regulations. Accounting norms applicable to banks may be applied to NBFCs,Ē the working group said.

Another disadvantage suffered by the NBFCs are regarding provision for NPAs under Section 36(1)(vii a) of the Income Tax Act.

Under this Section, provisions for bad and doubtful debts made by banks are granted deduction of 7.5% from the gross total income and 10% of aggregate average rural advances made by them. Alternatively, the banks also have an option to claim a deduction of 10% (up from the earlier 5%) on any provision made for assets classified by the RBI as doubtful / loss assets. However, this benefits is not given to NBFCs. Sources said the finance ministry is examining if parity could be accorded to NBFCs on this front too.

A finance ministry panel on NBFCs has also recommended tax parity to both banks and NBFCs on both taxation of income from NPAs in the year of receipt and on deductions under Section 36(1)(viia).

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