Union Budget 2023-24 + FINANCE Bill, 2023

Non-Banking Financial Company (NBFC) categorization

Section 43B of the Act provides, inter-alia, that any sum payable by the assessee as interest on any loan or borrowing from a Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company shall be allowed as deduction on payment basis. It can be allowed on accrual basis if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.

2. Section 43D of the Act provides, inter-alia, for special provision in case of income of deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Interest income in relation to certain categories of bad or doubtful debts received by such deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or actually received, whichever is earlier.

3. Section 43B and section 43D of the Act currently use two erstwhile categories of NBFC namely, Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Such classification for non-banking financial companies is no longer followed by the Reserve Bank of India for the purposes of asset classification.

4. In view of the above, it is proposed to amend section 43B and section 43D of the Act, to substitute the words, “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company”, for the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf”.

5. These amendments will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-2025 and subsequent assessment years.

[clauses 13 & 14]

 

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Full Text:

Union Budget 2023-24 + FINANCE Bill, 2023

NBFC categorisation change: tax rules now specify deposit-taking and systemically important non-deposit-taking NBFCs for interest treatment. The proposal replaces the earlier statutory phrase referring to notified classes of non-banking financial companies with explicit reference to deposit-taking non-banking financial companies and systemically important non-deposit-taking non-banking financial companies, thereby specifying which NBFC categories are subject to the payment-basis interest deduction rule and the special interest income recognition rule. The amendment is prospective and will take effect from 1st April, 2024, applying to the assessment year 2024-2025 and subsequent years.