Budget 2024: NBFCs want govt to treat them on par with banks

The current limit for Section 80C deductions is Rs 1.5 lakh. Types of Investments and Spending: The deduction applies to a basket of investments and specific spending categories.

Treat us like banks. This is the gist of the long list of demands that NBFCs – non-banking financial companies– have submitted to the government as part of their pre-Budget recommendations.

So whether it is the tax that is levied on their interest income, or the restriction on cash receipts, NBFCs want the government to treat them on par with banks that enjoy various tax benefits.

They say that the regulatory framework for NBFCs have been tightened over the years and they are also tightly regulated by the Reserve Bank of India (RBI) and hence they should be given benefits like banks as well.

Among the key asks of NBFCs is the issue about deduction of tax at source on interest income received by NBFCs under Section 194A of IT Act.

Currently, tax at source is required to be deducted at the rate of 10 percent on the interest on loans extended by NBFCs to its customers even though banks and other financial institutions are exempt from this section.

NBFCs are of the view that this disparity puts banks a step ahead even though both, banks and NBFCs, are regulated by the central bank.

“We wish to highlight that like banks, even NBFCs are regulated by Reserve Bank of India and are mandated to follow RBI guidelines… In fact, over the years, similar to banks, RBI has been tightening the regulatory framework for NBFCs and has brought convergence in regulation for NBFCs with banks,” stated the submission.

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It further highlighted the fact that all deposit accepting NBFCs (NBFC-D) and all systemically important non-deposit accepting NBFCs (NBFCs-ND-SI) are subject to prudential regulations such as capital adequacy requirements and provisioning norms along with reporting requirements, again similar to banks.

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Another ask of the industry is removal of restriction on cash receipts in excess of Rs 2 lakh under Section 269ST and extending the exemption to NBFC to bring them on par with banks.

“As NBFCs lend to the un-banked population such as agriculture and micro segment, such restriction impacts the business operations. Inclusion of NBFCs akin to banks, co-operative bank and post-office savings banks will facilitate business operations to a large extent,” stated the NBFC paper.

NBFCs also want to be allowed to carry forward accumulated losses in case of amalgamation or demerger u/s 72A of the IT Act, which currently is applicable only on banks.

“Considering the significant growth of NBFC in India, it is recommended that provisions of section 72A of the IT Act are extended to NBFCs also to facilitate consolidation initiatives in this sector. The same business continuity conditions as are presently applicable for banks can be extended to NBFCs as well,” stated the submission with the list of recommendations.

Among other things, NBFCs have also requested the government to align the special deduction on provision for bad and doubtful debts between bank and NBFCs, simplify compliance by rationalising provisions of TDS and TCS, amending Section 194IA to exempt all property sale transactions under SARFAESI from withholding provisions and an increase in the threshold for non-deduction of TDS on interest in case of fixed deposits with housing finance companies.

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In terms of recommendations related to indirect tax and GST, the industry wants the government to allow adjustment of credit notes while filing GSTR-3B and payment of taxes on net basis and payment of reverse charge liability through utilisation of input tax credit.

The industry has also sought clarification on GST applicability on NBFCs on higher interest rate and excess interest spread with regard the co-lending business model.

Meanwhile, NBFCs, as part of their policy/regulatory related suggestions, have asked the government to setup a Working Group to review the framework for refinance mechanism for the industry while reducing the loan amount threshold for enforcing security interest under SARFAESI Act from the current Rs 20 lakh to Rs 1 Lakh for NBFCs.