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Banks today sought enhanced tax breaks for the provisions that they make in their books towards bad and doubtful debts.
With non-performing assets (NPA) becoming a source of worry, banks have sought full deduction for income-tax purposes on the provisions made by them for bad and doubtful debts.
This suggestion came at a pre-Budget meeting that heads of banks and financial institutions had with Finance Minister P. Chidambaram at the North Block on Monday.
Banks also want the Reserve Bank of India to allow some interest, say, 2 per cent, to be paid on current-account balances.
This would encourage more people to put their money in current accounts instead of keeping them as cash, State Bank of India Chairman Pratip Chaudhuri said after the meeting.
Currently, the income-tax law caps the amount that banks can avail themselves of as deduction for bad and doubtful debts. Provision for bad and doubtful debts made by banks are allowed as a deduction to the extent of 7.5 per cent of gross total income and 10 per cent of aggregate average rural advances made by them.
Alternatively, such banks can opt to claim a deduction in respect of any provision made for assets classified by the RBI as doubtful assets or loss assets to the extent of 10 per cent of such assets.
While banks sought full tax deduction on their provisions for NPAs, the Finance Industry Development Council pointed out that non-banking finance companies (NBFCs) do not get any tax deduction on the provisions made by them for bad and doubtful debts.
80ccf deduction
“Our plea to the Finance Minister was that asset financing NBFCs registered with RBI be allowed to avail themselves of deduction for their NPA provisioning,” Raman Aggarwal, Director (Member Managing Committee) of the Council, said after the meeting.
Some banks (not State Bank of India) also suggested that they be allowed to issue tax-free infrastructure bonds. A case was also made for reintroducing tax deduction of Rs 20,000 under Section 80CCF for investments in infrastructure tax-free bonds.
Chaudhuri said banks had also suggested that the lock-in period for tax-saving deposits be reduced from five years to three to bring them in line with tax-saving equity-linked savings scheme.
The threshold for tax deducted at source for interest on bank deposits should also be increased to Rs 25,000 from Rs 10,000. “Our view is that since almost all the fixed-deposit investors have got their PAN registered, this threshold amount should be hiked to Rs 25,000. This will eliminate paperwork. Today, very little interest on bank depsoits is escaping the tax net,” Chaudhuri said.
srivats.kr@thehindu.co.in
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