Analysts will keenly watch scout for any announcements on cash-starved NBFC sectorNon-banking financial companies (NBFCs), also known as shadow banks, have suffered a blow ever since a liquidity crunch brought to fore various issues affecting sector.
As Finance Minister Arun Jaitley tables interim Budget in Parliament on February 1, analysts will keenly scout for any announcements on cash-starved sector.
From management reshuffles to open market operations, central bank and government have time and again announced measures to rescue non-banking financial companies.
Analysts say liquidity constraints faced by some NBFCs may hamper credit supply and subsequently economic growth in coming years.Industry body Ficci has said that benefit of Section 43D of Income Tax Act should be extended to non-banking financial companies, in order to ease liquidity conditions for sector, among other steps.Section 43D recognises principle of taxing income on sticky advances only in year in which they are received - a benefit already available to banks, financial institutions, co-operative banks and state financial corporations."In absence of specific coverage of NBFCs (other than housing finance companies which are already covered by provisions of Section 43D) in Section 43D of Act and in light of ICDS provisions, NBFCs would be required to recognise income on such NPAs for tax purposes on an accrual basis, resulting in levy of tax on income which may not be realised at all," noted Ficci, in itspre-Budget memorandum 2019-20.This would severely impact liquidity of NBFCs in terms of cash flow payouts, their profitability and also has a consequent impact on their cost of operations, it noted.
"An amendment should be made to Section 43D of Act, to extend benefit of section 43D of Act to non-banking financial company, whereby interest income on non-performing assets should be taxed only on receipt basis."Here's a list of some other expectations for NBFC sector by industry body Ficci:Exclusion of interest/processing charges paid to NBFCs from provisions of Section 194ATaxability of excess interest spread (EIS) in direct assignment transaction be made on receipt basisProvide clarity for higher depreciation rate on vehicles given on lease by NBFCsHigher depreciation rate on plant and machinery given on lease by NBFCsExclusion from applicability of provisions of section 269TInterest deduction limitation under section 94BNo MAT to be levied on statutory reserves and statutory provision created by NBFCs