At a pre-Budget meeting with Finance Minister P Chidambaram, several banks have sought full deduction for income-tax purposes on the provisions made by them for bad and doubtful debts.
If the request is accepted by the government, it would benefit banks in a big way at a time when non-performing assets (NPA) is rising sharply.
Currently, the income-tax law caps the amount that banks can avail themselves of as deduction for bad and doubtful debts.
According to the existing norms, provision for bad and doubtful debts made by banks are allowed as a deduction to the extent of 7.5 per cent of gross total income and 10 per cent of aggregate average rural advances made by them.
Alternatively, such banks can opt to claim a deduction in respect of any provision made for assets classified by the RBI as doubtful assets or loss assets to the extent of 10 per cent of such assets.
During the meeting, banks also suggested that Reserve Bank of India (RBI) must allow some interest, say, 2 per cent, to be paid on current-account balances.
State Bank of India Chairman Pratip Chaudhuri said this would encourage more people to put their money in current accounts instead of keeping them as cash.
Some banks also suggested that they be allowed to issue tax-free infrastructure bonds. A case was also made for reintroducing tax deduction of Rs 20,000 under Section 80CCF for investments in infrastructure tax-free bonds.
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