The Hindu Business Line : Tax on cash transaction, fringe benefits seen hitting agri co-ops

THE co-operative sector, no fringe player in shaping the rural and agricultural economy, has joined the list of casualties from the Budget double whammy of cash transaction tax (CTT) and fringe benefit tax (FBT).

The impact varies in intensity across institutions, with the Agricultural and Rural Development Banks (ARDBs) being the worst hit. This is because ARDBs are banks merely in nomenclature, and are prevented from conducting banking business in the first place.

Speaking to Business Line, Mr K. Sivadasan Nair, President of the Kerala State Co-operative Agricultural and Rural Development Bank (KSCARDB), said he feared the CTT-FBT combine would not just bleed the apex co-operative but erode its customer base as well.

ARDBs have been given permission to use the title `bank' through a special provision in the Banking Regulation Act. Unlike State co-operative banks and urban co-operative banks, they are barred from raising own resources. Agriculture credit is made by issue of loans through bearer cheques written against current account maintained with other banks.

CTT is levied at the rate of 0.01 per cent for any withdrawal beyond Rs 1 lakh on a single day. On an average, KSCARDB issues loans of up to Rs 10 lakh every day. Going by the annual disbursement figures for the previous year, the apex co-operative would be required to part with no less than Rs 35 lakh in CTT, Mr Nair said.

For a co-operative institution operating on wafer-thin margins ranging from 0.25-1.25 per cent, this is proving to be a tall task. CTT would also wean away customers, since there would be hardly any incentive for them to continue to do business. The least the Finance Minister can do is to exempt bearer cheques from the purview of CTT.

The FBT has come to haunt the co-operatives as a whole, with a number of routine functions related to conduct of normal business coming under its purview. The value of fringe benefits shall be the aggregate cost incurred. That is, the total expense deducted will be considered for purposes of levying tax.

From this, a certain percentage will be deducted. The difference therein will be taxed at the rate of 30 per cent.

However, the FBT varies from 10 per cent to 50 per cent depending upon the expense incurred.

For example, for the use of telephones, FBT will be charged at the rate of 10 per cent, while entertainment expenses, festival expenses and gifts will attract 50 per cent.

Co-operatives are busy doing their calculations for the first quarter of the financial year to comply with a July15 deadline.

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