TDS reduction on income from security receipts will free up additional liquidity for investors, ARCs

Budget

The reduction in tax deducted at source (TDS) on income from security receipt from 30 percent to 10 percent by the government in the Union Budget 2025, is expected to release additional liquidity for the investors, experts said.

Usually, ARCs acquire stress assets from the financial institutions and issue security receipts (SR) to fund further stress assets. Due to higher TDS, funds were getting blocked at the tax depart, which can be claimed later, leading to getting less liquidity to ARCs.

SR are issued to investors by ARCs in exchange for a share of the upside in bad loans acquired for recovery.

“It will boost sentiments of investors in Security Receipts, including the ARCs and help in improving liquidity. Overall positive impact on stressed assets market,” said Hari Hara Mishra, CEO, Association of ARCs in India.

Currently, TDS on income derived from securitization trsut constituted under SARFAESI, is 25 percent, if the investor is individual or a Hindu Undivided Family, and 30 percent for any other person.

This government has reduced to 10 percent in the Union Budget 2025.

Last year, Association of ARCs in India has written a letter to the government to request for rationalizing the provision on TDS and reduce it for the benefit of all the stakeholders, including simplifying tax collection process.

The letter also said that association has also made some recommendation on July 8, 2020.