In a pre-Budget meeting with finance minister Nirmala Sitharaman on Wednesday, non-bank finance companies (NBFCs) sought a dedicated National Housing Bank-like refinance window and reduction of SARFAESI enforcement threshold to Rs 1 lakh. They have also demanded Tax Deducted at Source (TDS) exemption for NBFC interest income, and inclusion of NBFCs under Section 80E of the Income Tax Act for education-loan interest deduction.
During the FM’s meeting with the Banking, Financial Services, and Insurance (BFSI) industry, banks are learnt to have requested for an increase in the income deduction allowed for NPA provisioning and a lower tax rate on fixed deposits to increase low-cost deposit mobilisation. This is in the context of household savings being increasingly channelised to the capital market, either directly or through mutual funds.
“We have asked for a dedicated refinance window on the lines of NHB,” Raman Aggarwal, CEO of FIDC, the Self-Regulatory Organisation for NBFCs.
NBFC present their challenges
NBFCs face funding volatility and depend heavily on banks and markets, making them vulnerable during liquidity stress. A permanent refinance window would provide stable, affordable funds, support uninterrupted credit flow to MSMEs and underserved borrowers, lower lending rates, and offer a level-playing field with housing finance companies.
Another demand of FIDC was reducing the threshold limit from Rs 20 lakh to Rs 1 lakh for NBFCs to enforce security under SARFAESI, as available to banks, which can invoke the law for recovery of much smaller loan amounts. NBFCs argue that lowering the threshold to Rs 1 lakh would strengthen recovery, curb wilful defaults, improve asset quality, and ensure a level-playing field with banks, enabling NBFCs to price loans more competitively.
FIDC also sought exemption from TDS on interest income under section 194A as available to banks, Aggarwal said. NBFCs argue that TDS deductions (at a 10% rate) on the interest they earn from borrowers create avoidable cash-flow pressures and lead to large reconciliation burdens, especially when customers fail to deposit or report the deducted TDS correctly. This often results in mismatches, delays in refunds, and higher compliance costs.
FIDC also sought notification of NBFCs for deduction in taxable income u/s 80E of the Income Tax Act on interest on education loans. Currently, this benefit applies only to loans taken from banks and notified financial or charitable institutions, excluding NBFCs. Since many students, especially in smaller towns, rely on NBFCs for quicker and more flexible education loans, the absence of 80E benefits makes these loans costlier.
Banks seek increase in income deduction on NPA provisioning
Banks have sought an increase in the income deduction allowed on NPA provisioning, arguing that the current limit of 8.5% of total income is too low compared to the rising requirement for loan-loss buffers. When banks classify loans as NPAs, they must make higher provisions, which reduces their taxable income. They want this cap raised so that provisioning reflects real credit risk, strengthens balance sheets, and ensures fair tax treatment during periods of higher stress or delinquency.
Banks have demanded uniform tax treatment for fixed deposits and mutual funds, arguing that both are savings and investment products and should not face different tax rules.
