Incentives to Non-Banking Finance Companies (NBFCs)

The existing provisions of section 43D of the Act, inter-alia provides that interest income in relation to certain categories of bad or doubtful debts received by certain institutions or banks or corporations or companies, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account actually received, whichever is earlier. This provision is an exception to the accrual system of accounting which is regularly followed by such assessees for computation of total income. The benefit of this provision is presently available to public financial institutions, scheduled banks, cooperative banks, State financial corporations, State industrial investment corporations and public companies like housing finance companies. With a view to provide a level playing field to certain categories of NBFCs who are adequately regulated, it is proposed to amend section 43D of the Act so as to include deposit-taking NBFCs and  systemically important non deposit-taking NBFCs within the scope of this section. Consequentially, as per matching principle in taxation, it is proposed to amend section 43B of the Act to provide that any sum payable by the assessee as interest on any loan or advances from a deposit-taking NBFCs and systemically important non deposit-taking NBFCs shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent years.

[Clauses 13 & 15]

 

 

 

Interest recognition rule extended to regulated NBFCs, with deductions allowed only when interest is actually paid by return-filing deadline. The accrual-exception that taxes interest on bad or doubtful debts when credited or received is extended to include deposit-taking NBFCs and systemically important non-deposit-taking NBFCs; correspondingly, interest deductions for payments to these NBFCs are allowable only if actually paid on or before the due date for filing the return of income, aligning their tax treatment with other regulated financial institutions.