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July 18, 2001
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Money > Business Headlines > Report July 18, 2001 |
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Tax reprieve for core sector loansSantosh Tiwary The government is planning to bring into force the newly-introduced Section 14 (A) of the Income Tax Act only from the 2002-03 assessment year, and not with retrospective effect from the 1962-63 assessment year. The section introduced through Finance Act 2001 has denied financial institutions and banks tax benefits on their exposure to infrastructure projects. Sources said that a proposal to allow assessment of only the new cases under Section 14(A) is awaiting the government's final nod. A clarification excluding old cases is likely to be issued as soon as the government clears the proposal, they added. Exclusion of the old cases from assessment under the new section will come as a big relief for corporates, which had availed loans in the past. FIs and banks, which had so far been passing on the tax benefit to borrowers have already claimed them back in some cases. The new section says, "No deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Income Tax (IT) Act." As a result, banks and FIs have now been allowed to get the tax benefit only on the net income and not the gross income. If an FI offers a core sector loan at 12 per cent and its cost of funds is 10 per cent, it will be able to claim the tax benefit only on 2 per cent and not the entire 12 per cent which most institutions had been doing till now. The amount claimed back by the FIs and banks from the corporates due to this move, with retrospective effect from 1962-63 assessment year, is estimated to be over Rs 10 billion. However, revenue department sources said that it will be difficult to quantify the amount. According to industry sources, the cost of the new infrastructure projects is likely to escalate by around 3 per cent per annum due to the insertion of Section 14(A). The section had been introduced to eliminate the dual tax benefit, which FIs and banks had been enjoying so far. Earlier, they could claim tax benefits on both the investment as well as the interest income on their exposure to core sector projects. Powered by YOU MAY ALSO WANT TO READ:
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