The Hindu Business Line : Infrastructure loans: Banks want tax sops

Mumbai, Feb. 8 Tax concession on interest earned on infrastructure loans, and exemption from tax deduction at source are some of the demands made by Indian Banks’ Association in its Budget memorandum to the Government.

Earlier, banks were allowed to claim interest earned on long term lending to infrastructure industries, as an allowable deduction, which was removed in the Budget of 2006. As infrastructure is a key focus area for economic growth, tax concessions will enable banks to offer lower rates on infrastructure loans, said IBA.

The industry is also expecting incentives for the infrastructure sector. At a recent CII seminar, Mr Y.M. Deosthalee, Chief Financial Officer, L&T, had said that as the infrastructure industry needs a lot of investments, there is need to incentivise investment for the infrastructure sector. “I am sure the Finance Minister may do something for retail investment to flow into the infrastructure sector. We are also expecting ECB relaxation for infrastructure,” he said.

TDS call

TDS for banks causes considerable inconvenience, as banks have to collect huge numbers of TDS certificates from thousands of borrowers and customers, said the Association.

Often the tax benefit is lost, because the I-T department does not grant credit if it does not receive the TDS certificates from the borrowers/customers (who may not have obtained their certificates on account of delays). This results in unnecessary tax liability.

As banks have been given exemption on interest income other than on securities, a similar blanket TDS exemption should be given to banks to facilitate a “hassle-free administrative mechanism”, said IBA.

Allowing this exemption will not cause any revenue loss to the Government, since TDS is only a means of advance collection of tax; also, banks, in any case, pay advance tax.

Pension funds

Another demand from IBA was that contribution by a bank to a pension fund for employees should not be considered as a fringe benefit, if the pension fund is given instead of provident fund.

Pension funds have substituted provident funds for those employees who opted for pension instead of contributory provident funds, under the bipartite settlement in 1993. Therefore, contribution to pension funds should not be treated as fringe benefit, says the IBA memorandum.

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