New Delhi: Ahead of the budget, industry body CII Wednesday demanded that non-banking financial companies be treated at par with banks for taxation purposes in order to promote balanced development of the financial sector.
"NBFC should also be allowed specific deduction of 7.5 percent of its gross total income on account of provisions for bad and doubtful debts while computing its income under normal provisions under head profit & gains from business or profession," the industry body said.
Banks get tax deductability of 5-7.5 percent under this.
In order to increase contribution of NBFC sector to the Indian economy and promote balanced development of financial sector, CII has recommended to bring parity on taxation of NBFCs with banks in its Pre-Budget Memorandum to the Ministry of Finance.
NBFCs form an integral part of Indian financial system, providing risk diversification to financial sector thereby playing a complementary role to banking system, it added.
"NBFC sector needs to be provided adequate policy support in the Budget to help meet financing needs of economy and also to achieve financial inclusion agenda. Parity on taxation for NBFC sector with Banks would create a level playing field and promote balanced development of the Indian financial sector", said Chandrajit Banerjee, Director General, CII.
It has asked for tax deductibility for bad and doubtful debts and extension of exemption on Tax Deduction at Source (TDS) as applicable to banks.
NBFCs supplement banks, they should be treated at par with banks and benefit of Nil TDS should be extended to them.
Addresssing these issues would provide them a level playing field vis-a-vis banks and make growth and development of the sector more robust and sustainable, it said.
In a separate release, India Ratings said GDP growth revival will entail large credit demand from NBFC sector.
"Most public sector banks, which control about 70 percent of the system, have limited ability to provide the required credit in view of their capital constraints (increased capital provision needs under Basel III).
"We expect a part of the credit market share, especially where NBFCs have niche (small & medium enterprises, commercial assets) to move to them," said India Ratings (Ind-Ra).
It also expects most NBFCs to witness a moderate loan growth in FY16.
