Assocham demands exemption of infra NBFCs from tax on interest income

The Associated Chambers of Commerce and Industry (Assocham) has called for exemption of infrastructure non-banking financial companies from tax deductions at source on interest paid to them.

In its representation to the government the chamber says the move would give NBFCs sufficient cash flows to support their capital cycle.

The industry body says such entitlement should be restricted to only NBFCs that are engaged in infrastructure financing that are registered with the Reserve Bank of India and following all prudential banking norms.

It said the Central Board of Direct Taxes could stipulate that only systemically vital infrastructure financing NBFCs would be entitled to such exemption.

Under the current provisions, tax deduction at 10 per cent at source out of the interest payment made by any borrower to NBFC is mandatory.

Banks, co-operative societies engaged in banking business, public financial institutions, LIC, UTI, insurance companies and some other notified institutions are exempted from this levy, Assocham noted.

The stipulation, Assocham says, places NBFCs at a disadvantage and creates severe cash flow constraints as NBFCs operate on a thin spread of interest income.