Money & Banking

Banks pitch for higher tax breaks on bad debt provisioning

Our Bureau New Delhi | Updated on January 19, 2012 Published on January 19, 2012

More incentives to attract deposits sought

Banks have sought full income-tax deduction on all the provisions made for bad and doubtful debts in their books.

At a pre-Budget interaction with the Union Finance Minister, Mr Pranab Mukherjee, here on Thursday, top bankers suggested that all such provisions should be allowed as deductible expenditure, not subject to any taxation, sources said.

At present, according to the income-tax law, provision for bad and doubtful debts made by banks are allowed deduction of 7.5 per cent of gross total income and 10 per cent of aggregate average rural advances made by them.

Alternatively, banks have an option to claim a deduction in respect of any provision made for assets classified by the Reserve Bank of India as doubtful or lost to the extent of 10 per cent of such assets.

The bankers also sought more incentive to attract deposits. In particular, they suggested that the lock-in-period for Section 80C deposits should be reduced to three years from the current five years.

They also suggested higher TDS exemption limits on interest on deposits. A suggestion was made to hike the annual TDS exemption limit to Rs 50,000 from the current level of Rs 10,000, sources said.

Support for infra funding

The bankers also wanted a separate taxation window for pension funds and long-term funds. The need to support infrastructure funding was also highlighted and a demand was made to make banks eligible entities for issuing tax-free infrastructure bonds.

The requirement for special incentives for investors in infrastructure bonds was also discussed, as also the need for clarity and broadening of the definition of infrastructure.

On financial inclusion, they wanted incentives for banks which had done well to take them to the second level of economic inclusion.

In view of the high costs of education, it was suggested that a loan guarantee scheme be launched.

Meanwhile, the Finance Industry Development Council (FIDC) urged Mr Mukherjee to bring Non Banking Finance Companies (NBFCs) at par with the banks on the issue of tax deduction of provisions made or bad and doubtful debt. Currently, NBFCs do not get any deduction on such provisions.

FIDC also made a case for hiking depreciation rates (under the income-tax law) on construction equipment from 15 per cent to 40 per cent — at par with the 40 per cent rate prescribed for commercial vehicles.

It was also suggested that banks lending to NBFCs for on-lending be treated as priority sector lending, Mr Raman Agarwal, Member of the Managing Committee of FIDC, told Business Line here after the meeting.

Published on January 19, 2012
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