In a big relief to banks struggling with bad loans, the Government on Wednesday proposed tax concession on provisions for NPAs while announcing capital infusion of Rs 10,000 crore for state-owned lenders. It also proposed that tax on interest will be levied on actual receipts and not on accrual basis in respect of Non Performing Asset (NPA) or bad loan accounts.
BSE banking index surged 2.76 per cent, a full percentage point more than the BSE Sensex itself. Presenting Union Budget 2017-18 in Parliament, Finance Minister Arun Jaitley said: “In order to give a boost to banking sector, I propose to increase allowable provision for Non-Performing Asset from 7.5 per cent to 8.5 per cent. This will reduce the tax liability of banks.” He also proposed to tax interest receivable on actual receipt instead of accrual basis in respect of NPA accounts of all nonscheduled cooperative banks as well, at par with scheduled banks.
“This will remove hardship of having to pay tax even when interest income is not realised. Currently banks can claim deduction in respect of provision for bad and doubtful debts. Jaitley also announced that Rs 10,000 crore will be infused in public sector banks in the next fiscal and more will be provided if required. “As per the Indradhanush plan, the public sector banks will be provided with Rs 10,000 crore in the next fiscal. Additional allocation would be made if required,” he said.