Industry Expectations - Budget 2008

• Recognition to Employees Provident Fund Trust and Employees Pension Fund of Private Sector Banks should be continued as in the case of Public Sector Banks. A representation to this effect by Private Sector Banks individually and through Indian Banks’ Association has also been given to Ministry of Finance. According to amendment in Employees’ Provident Funds and Miscellaneous Provision Act 1952 through Finance Bill 2006, PF Trusts of Private Sector Banks’ employees may be de-recognized in coming years. Such de-recognition would result in both the establishment and employees losing tax benefits in their contribution to the fund. Private Sector Banks are managing these funds efficiently and there was no complaint from any employee or regulatory authority, however, the different treatment in continuing exemptions at this stage between private sector banks and public sector banks is great set back for private sector banks and its employees. It is to mention that eligibility of public sector banks to manage PF Trust and Pension Trust is continuing.

• In the case of deductions on contributions towards recognised Provident Fund, the limit of 27 per cent prescribed under Rule 87 of Income Tax Act should be done away with for entities administering defined benefit schemes of pension, the terms of which have been approved by the government. Taking into account the burden of pension liabilities under a defined benefit scheme, in the context of Accounting Standard (AS) 15 and increase in the life expectancy over the past 45 years from the time the Income Tax Rules 1962 came into effect, there was need to dispense with the limit.
• An amendment in Rules 103 and 104 of the Income Tax Act Rules allowing the employers to make ordinary or initial contribution to the Approved Gratuity Fund as required by Accounting Standard (AS)-15 and not restricting to 8.5 per cent of salary.
• Present provision for bad and doubtful debts available under section 36 (1) (viia) may be replaced an allowance based on actual provisioning made as per the RBI guidelines. At present a bank or a financial institution has to make provision for bad and doubtful debts in accordance with guidelines issued by RBI. The guidelines are mandatory and not merely advisory. RBI carries out inspections to ensure that NPAs of the Banks and FIs are classified in accordance with RBI norms and provisioning is made as per the guidelines. There was considerable divergence between provisions made under RBI guidelines and that admissible under the IT Act. The Income Tax law be amended to allow mandatory provision made by a bank or a financial institution as per RBI guidelines, as a deduction and to tax any write back of such provision.
• An explanation be inserted under clause (c) of sub-section (1) of Section 115 WB stating that for the purpose of this clause any contribution by a scheduled bank to a pension fund for employees created in lieu of provident fund should not be considered as an FBT.
• Deductions under Section 10(23) (G), helped in channelising the investments in infrastructure sector. While fixing interest rates for such infrastructure projects took tax benefit available into account. Deletion of this section has resulted in increase in tax liability to the banks and also to the borrowers. Therefore, this section should be introduced, as infrastructure will remain a key focus in the future.