Non-banking finance companies (NBFCs) have urged the Finance Ministry to create a level playing field in debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, according to a person aware of the discussions. During the pre-budget consultation meeting on Wednesday, representatives from NBFCs and the microfinance sector requested that smaller loan amounts also be brought under the ambit of SARFAESI. They further sought relaxation in the tax deducted at source (TDS) applicable on interest payments.
Currently, the SARFAESI Act applies to non-agricultural loans of ₹20 lakh and above for NBFCs, whereas for banks the threshold is only ₹1 lakh. NBFCs are requesting a reduction in this threshold so that they can more effectively use the mechanism for debt recovery.
The microfinance sector also called for an expansion of the eligibility criteria for collateral-free loans. At present, households with annual incomes of up to ₹3 lakh qualify for such loans. “The microfinance sector wants the eligibility limit to be raised to ₹5 lakh, as the current ₹3 lakh threshold was set long ago,” said a source who attended the meeting.
Sector representatives also highlighted that borrowers currently are required to deduct 10% TDS on interest repayments to NBFCs, while no such deduction is required when repaying banks. They have sought parity with banks on this front as well.
Representatives from the banking industry pressed for parity between long-term capital gains (LTCG) tax on bonds and the tax treatment of fixed deposits (FDs). Currently, LTCG on listed bonds is taxed at 12.5% if held for more than 12 months, whereas interest income on FDs is taxed at the individual’s income tax slab rate.
“Banks highlighted that returns on government bond yields are higher, making it challenging for banks to attract customers to deposits,” the source added. They also pointed out that interest earned on term deposits is fully taxable, which discourages savers from parking funds in FDs at a time when banks are looking to strengthen their deposit base.
The meeting was chaired by Finance Minister Nirmala Sitharaman. Minister of State for Finance Pankaj Chaudhary, Department of Economic Affairs Secretary Anuradha Thakur, Chief Economic Adviser V. Anantha Nageswaran, and other senior officials of the Finance Ministry were also present.