Banks want their investments in company shares and debentures, loans and guarantees given to corporates as part of normal business activities, to be excluded from transfer pricing norms. | |
| This forms part of banks' wish-list for budget 2008-09 submitted to the government. An exemption will allow banks to claim the tax benefits available on such expenditure. |
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| Under the international transfer pricing regulations, a bank's expenditure in a company in which it is deemed to have a substantial interest, does not qualify for tax deduction if the pricing is considered excessive or unreasonable. |
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| A bank is treated as a related party if it holds at least 20 per cent, with voting rights, in a company and an associated enterprise if its holding is 26 per cent. |
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| The transfer pricing norms also cover bank loans which account for at least 51 per cent of the book value of the borrower's total assets, and guarantees in excess of 10 per cent of the total borrowings. |
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| If the assessing officer determines that the expenditure between related parties exceeds fair market value or is unreasonable, deduction to that extent would not be allowed. Banks have submitted that as the pricing is based on norms outlined by banks that are in turn regulated by the apex body, the Reserve Bank of India (RBI), it is necessary that banks be excluded from the purview. |
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| "Banks provide financial assistance to corporate and non-corporate clients by way of investment in equity or preference shares, subscription to debentures, loans and guarantees. Hence there is a possibility that the financial assistance by way of equity shareholding may exceed the specified shareholding limits for cases wherein banks do not have any control nor do they exercise any significant influence," said the Indian Banks' Association (IBA) in its pre-budget memorandum. |
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| Besides, banks want the interest earned on long-term lending to infrastructure industries to be exempted from income tax. Banks have also sought exemption from deduction of tax at source (TDS) as the huge volumes of TDS certificates cause considerable inconvenience. |
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| Further, banks would face an unnecessary tax liability if the income-tax department does not receive the TDS certificates from the borrowers, with no credit granted for deducting the tax at source. An exemption for banks will facilitate a hassle-free administrative mechanism. |
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| Banks have also asked for the prevailing provisions concerning bad and doubtful debts, which allow limited deduction of income tax, to be replaced by a provision to allow deduction on actual provisioning as per the RBI guidelines. |
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| Banks want the limit on their deductible contributions towards defined pension schemes for employees, currently capped at 27 per cent of the employee's annual salary, to be done away with. |
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| "To take into account the burden of pension liabilities under a defined benefit scheme, in the context of AS-15 and increase in life expectancy over the past 45 years, there is a need to dispense with the limit," said IBA. |
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| Similarly, the ceiling for contribution to an approved gratuity fund, pegged at 8 1/3 per cent of the employee's salary, should be removed to allow banks to make contributions as required by AS-15. |
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| BANKS' WISH LIST |
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| Banks want limited exclusion for transactions carried out in normal course of business Interest earned on long-term lending to infrastructure to be tax-free Banks should be exempt from TDS Actual provision for bad and doubtful loans to be allowed deduction Banks should be allowed to make tax deductible contribution of over 27 per cent of employee's annual salary to pension scheme Banks should be allowed to make tax deductible contribution of over 8.13 per cent of employee's salary to gratuity fund |
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