Govt considers partial parity with banks for NBFCs on FD interest and GST treatment; refuses structural changes on liquidity, debt recovery<\/p>\n
New Delhi, July 11 \u2013 In a move that could partially address regulatory disparities between Non-Banking Financial Companies (NBFCs) and banks, the government is likely to grant limited tax relief to the NBFC sector. According to a senior official, the Finance Ministry is actively reviewing proposals to extend income tax exemptions on fixed deposit (FD) interest for senior citizens and to remove Goods and Services Tax (GST) on co-lending service fees charged by NBFCs to banks. However, broader sectoral demands, including SARFAESI access and refinancing institutions, are likely to be rejected.<\/p>\n
Currently, senior citizens enjoy tax exemption on up to \u20b91 lakh interest income from bank FDs, but this does not apply to NBFC FDs. The government is now considering extending this benefit to NBFCs, which could increase their competitiveness in retail deposits.<\/p>\n
Also Read : TCS Q1 Miss Triggers IT Selloff; Sensex Drops 700 Pts, Nifty Below 25,150<\/a><\/p>\n NBFCs have also sought GST exemption on co-lending service fees charged to banks under joint lending arrangements. In co-lending, NBFCs originate and manage loans funded jointly by banks and NBFCs. While banks are exempt from GST on service charges, NBFCs must pay 18% GST, leading to margin erosion.<\/p>\n \u201cThere is a valid concern here. The GST treatment for NBFCs under co-lending models may be reviewed positively,\u201d Relief Under Consideration:<\/p>\n FD interest tax exemption: For senior citizens\u2019 NBFC deposits, up to \u20b91 lakh, in line with banks<\/p>\n<\/li>\n GST waiver on co-lending service fees: To match tax treatment of banks in co-origination arrangements<\/p>\n<\/li>\n<\/ul>\n Despite these limited concessions, the government has ruled out acceptance of larger structural demands raised by NBFCs. The most contentious is the request to reduce the SARFAESI Act threshold from \u20b920 lakh to parity with banks, which currently face no minimum cap.<\/p>\n \u201cReducing the SARFAESI threshold for NBFCs could flood Debt Recovery Tribunals with small-ticket defaults and potentially expose retail borrowers to harassment,\u201d NBFCs have also demanded a dedicated liquidity window, akin to the RBI\u2019s repo facility for banks, and the establishment of a refinancing body for long-term low-cost capital access in MSMEs, affordable housing, and rural lending. But the government has no plans to concede these.<\/p>\n \u201cNearly 40% of NBFC funding already comes from banks. Special liquidity lines created during COVID were underutilized,\u201d Traders and investors in NBFC stocks should note that short-term sentiment may turn slightly positive for select deposit-heavy NBFCs and fintech lenders with co-lending exposure. However, the larger regulatory overhaul sought by the sector appears unlikely for now.<\/p>\n NBFC Stocks to Watch:<\/p>\n Bajaj Finance<\/a>, Shriram Finance<\/a>, Muthoot Finance<\/a> \u2013 Key FD-focused NBFCs<\/p>\n<\/li>\n L&T Finance<\/a>, Aditya Birla Capital<\/a>, UGRO Capital <\/a>\u2013 Active in co-lending partnerships<\/p>\n<\/li>\n LIC Housing<\/a>, PNB Housing<\/a>, Aavas Financiers<\/a> \u2013 May remain under pressure on SARFAESI status quo<\/p>\n<\/li>\n<\/ul>\n Macro Context to Track:<\/p>\nGST Relief Likely for Co-Lending Fees Charged by NBFCs<\/h2>\n
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said the government official, signaling potential relief on a long-standing taxation anomaly.<\/p>\n<\/blockquote>\n\n
No Relief Likely on SARFAESI, Liquidity Window, or Refinance Facility<\/h2>\n
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the official said. Over 11 lakh DRT cases are already pending.<\/p>\n<\/blockquote>\n\n
the source pointed out.<\/p>\n<\/blockquote>\nLimited Gains for NBFCs, No Major Structural Shift<\/h2>\n
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