The RBI classifies a mortgage as an NPA if the curiosity or principal stays overdue for greater than 90 days, whereas the income-tax act classifies a mortgage NPA if this era is greater than six months.
“In Might, these ideas had been made to the Division of Monetary Companies, which in flip flagged the difficulty with the income division within the finance ministry,” mentioned an official requesting anonymity, including that individually a illustration has additionally been made by the Indian Banks’ Affiliation, or IBA.
A committee with tax officers, representatives from the business and the Institute of Chartered Accountants of India has been tasked with the evaluation of the draft income-tax regulation and is analyzing the difficulty, mentioned one other authorities official.
The part 43D beneath the earnings tax act particularly supplies for taxation of curiosity earnings from non-performing loans. It’s taxed both on a realisation foundation or as a credit score to the assertion of revenue and loss, whichever is earlier.
Lenders have additionally sought a rise in deduction for the availability made for NPA to as much as 15% of the gross earnings from 8.5%. Underneath part 36(1)(viia) of the Earnings Tax Act, 1961, banks and monetary establishments are allowed a deduction in respect of the provisions made for non-performing belongings. The supply can be relevant to NBFCs and housing finance firms.
The business had previously flagged the difficulty citing quite a few litigation at numerous courts.
If the federal government agrees to the proposed adjustments, banks’ backside strains will get a lift. As per present information, gross non-performing belongings, or GNPAs, of scheduled industrial banks, or SCBs, stood at Rs 4.16 lakh crore as of This autumn FY25.
“The NPA recognition ideas will not be clearly aligned, resulting in cases the place the tax division seeks to tax notional curiosity earnings on NPAs, though such curiosity isn’t acknowledged in books because of RBI norms,” Sandeep Sehgal, Companion- Tax, AKM World, a tax and consulting agency mentioned.
This places unjust tax legal responsibility on unrealised earnings as banks and monetary establishments are required to pay tax on curiosity earnings past 90 days, Sehgal added.