BUSINESS
Tax liability on firms under the NCLT would be allowed to be amortised over 8 to 10 years
The buyers of financially stressed companies under the National Company Law Tribunal (NCLT) are likely to get tax easing in the upcoming Budget.
The government may allow tax liability on companies which are resolved under the NCLT with a haircut to be amortised over a period of 8 to 10 years.
That is, if a company under NCLT has a loan of Rs 1,000 crore and gets acquired at a 50% discount, the remaining Rs 500 crore will be considered as the income of the company and will be taxed.
"When the companies are handed over to the new management under the Insolvency and Bankruptcy Code (IBC), the amount of haircut is treated as an income and taxed. This tax liability may now be allowed to spread over an extended tenure of 10 years so that the burden on the new management is reduced," said a banker while talking about their Budget expectations.
The other tax exemption that banks are seeking from the Budget is on management changes that happen outside the NCLT and the Reserve Bank of India (RBI) mandated processes like strategic debt restructuring (SDR). When there is an equity transfer to the new management at a price lower than the fair value of the shares or the market value, then the difference in the share price is taxable. Bankers have been demanding a tax exemption for this also so that insolvency resolutions can move faster. If the equity transfer takes place under one of the RBI schemes or under the NCLT, it is not taxable.
Also, high provisioning norms put out by RBI have forced banks to demand full tax deduction on NPA provisioning. For cases that are referred to the NCLT, banks have to provide as high as 50% of the impaired loans. Bankers say tax exemption on the provisions will help in timely and speedy recognition of NPAs. Right now only 5% of the provisions that banks set aside is deducted from the taxable income of banks.
A dedicated fund to speed up creation of digital payments infrastructure, subsidies for PoS (point of sale), micro ATMs and biometric devices, incentives for usage of cards through attractive schemes like cashback offers, tax deductions are some of the expectations that bankers have from the Budget.
Taxing the interest accrued on bank deposits and decreasing the tenure of tax-free bank fixed deposits and increasing the exemption limit of interest payments for a home loan are some of the things that the industry has been demanding for a while now.
Keki Mistry, vice chairman and CEO, HDFC, said, "The government should increase the exemption limit of interest payments under housing loan to Rs 2.5 lakh for loan buyers from the existing level of Rs 2 lakh, which was last revised in 2014. The GST rate of 12% on property transactions is also very high. This should be rationalised."
Soumya Kanti Ghosh, chief economist at SBI, also reiterated that government should increase the exemption limit of interest payments under housing loan to Rs 2.5 lakh. "There are about 75 lakh home loan buyers in the country. So the increase in home loan interest deduction will cost the government around Rs 7,500 crore," Ghosh added.
"Less than 3% of the Indian population has access to social security schemes and about 50% of the total savings in the country are held in fixed deposits with banks. So the government should increase the exemption limit for deduction of tax on fixed deposits," added Ghosh.
"This will make it on par with equity schemes and mutual fund investments," Ghosh added. The overall impact of such concessions will result in revenue foregone of around Rs 28,500 crore.
Asutosh Kumar Mishra, senior research analyst, Reliance Securities, said, "Revival of the infrastructure projects and the fiscal deficit glide path, which will, in turn, determine the bond price movement, will be the important announcements that the banking sector will look forward to."
A survey undertaken by Ficci and Indian Banks Association (IBA) with 19 public sector and private sector banks reveals that majority of banks expect corporate direct tax rates to be cut to 25% from the prevailing 30%.
The survey also expects the exemption limit for deduction of tax on FD interest to be enhanced to at least Rs 25,000 per annum, tenure for tax exemption on retail term deposits to be reduced from minimum five to three years, in line with the ELSS scheme and grant of tax reliefs pursuant to proceedings under the Insolvency and Bankruptcy Code.
It also expects the Budget to enhance investments in infrastructure, introduce interest rate subvention to incentivise investment in infrastructure projects and higher thresholds for priority sector classification of affordable housing loans in metros.
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