Urge Pawar to take up issue with Finance Minister

Sarbajeet K. Sen

New Delhi, March 6

Stung by the Finance Minister, Mr P. Chidambaram's budget proposal to scrap the four-decade old exemption available to the co-operative banks from paying tax on profits, the sector is pressing hard for continuation of the benefit by arguing that the Government should not equate them with commercial banks for taxation purposes.

In a swift response to Mr Chidambaram's proposal to scrap benefits under Section 80(P) of the I-T Act, co-operative banks have written to the Agriculture Minister, Mr Sharad Pawar, to take up their cause with the Finance Ministry.

"It is a misconception to equate them (co-operative banks) with commercial banks and to bring them under the tax net by withdrawing the exemption that is available to them under Section 80(P) of the I-T Act. The entire co-operative sector, therefore, would like the Finance Minister to take back this proposal and continue to give the benefit of exemption under the section," the National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB) has said.

In his budget speech, Mr Chidambaram has said that that, "co-operative banks, like any other bank, are lending institutions and should pay tax on their profits." However, he had agreed to continue the Section 80P benefits for Primary Agriculture Co-operative Societies (PACS) and Primary Co-operative Agricultural and Rural Development Bank (PCARDBs).

Arguing that co-operative banks are essentially `mutual organisations' where significant part of their income is generated from doing business with members, NAFCUB has said that such income should be outside the ambit of tax since they are more in the nature of `surplus' than `income'.

NAFCUB has said that world-over "wherever the commercial banks and local co-operative banks are in competition, some relaxations in terms of regulation and taxes are invariably given to the smaller players to withstand competition."

Listing out the disadvantages that co-operative lending institutions have, the association said that they are not only on an unequal footing in mobilising resources such as interest-free current account funds, they are also handicapped in term of technology and capital base. Moreover, co-operative banks also do not have advantage of non-fund based income.

"The Government would need to weigh the impact of taking out such resources from a system which is ploughing back all these moneys into providing loans almost entirely to the lower strata of the urban and rural population?" NAFCUB has said.

(This article was published in the Business Line print edition dated March 7, 2006)
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