The Hindu Business Line : Plea to extend tax sops for income deferral in bad assets to NBFCs

THE Finance Industry Development Council (FIDC), theself-regulatory organisation for non-banking financial companies, in a recent pre-Budget memorandum to the Union Finance Minister, Mr P. Chidambaram, has sought extension of tax benefits for income deferral in NPA accounts under Section 43D of the Income-Tax Act for NBFCs.

The council has also sought coverage for RBI-registered NBFCs under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SRFAESI), 2002, and a new refinance corporation for NBFCs engaged in road transport finance along the lines of the National Housing Bank.

According to Mr Mahesh Thakkar, Co-ordinator, FIDC, the benefit of Section 43D of the I-T Act, which recognises the principle of taxing income on sticky advances in the year in which they are received should be extended to the NBFC sector also.

The benefit, already available to banks, FIs and State financial corporations, has now been extended to housing finance companies by the Finance Act of 1999.

In the case of NBFCs, the I-T authorities now tax such deferment of income on accrual basis.

Pointing out that the NBFC sector was the only segment in financial services denied this tax benefit, FIDC has suggested that the said Section be extended to include in its scope RBI-registered NBFCs.

Mr Sanjay Chamria, Managing Director of Magma Leasing, told Business Line that such tax benefits have to be extended to all players in the financial services sector without discrimination.

Only serious players are now left in the NBFC sector, as recognised by the RBI itself, and seeking to differentiate between NBFCs and other financial institutions in the area of tax benefits (for income deferral in NPA accounts) cannot be justified, he said.

Asked on the need for a refinance body similar to NHB for road transport finance, Mr Chamria, whose company has a strong presence in this segment, said the road sector too had a social dimension, by way of employment creation, for every MUV (multi-utility vehicle) or truck financed.

Going by the projected sale of three-lakh trucks for this year, he said some 1.8 million people could be gainfully employed (six persons per vehicle). And if the MUVs are also included, jobs can be provided for another five-lakh people.

According to him, even as the road infrastructure is being developed, truck financing leads to substantial self-employment generation.

There is no speculation involved in purchase of vehicles, as these are tangible assets, and therefore, a refinance body can provide the required financing quite easily, especially when the Government has accorded high priority to the road sector.

The potential of the commercial vehicles financing industry is estimated at Rs 15,000 crore, and an additional Rs 6,000 crore would be needed for phasing out CVs, which are more than 15 years old.

Mr Thakkar felt since NPAs were a problem common to all lenders in the financial sector, and also when prudential norms for asset classification, income recognition, provisions etc., applied to NBFCs as well, benefits of the SRFAESI Act should also be extended to RBI-registered NBFCs.

More Stories on : NBFCs | Non-Performing Assets | Taxation

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