INCENTIVES FOR THE BANKING SECTOR

Amendment of provisions relating to deduction for provision for bad and doubtful debts in the case of Banks.

Under the existing provisions of section 36 (1)(viia), in computing the business income of a scheduled bank (not being a bank incorporated by or under the lows of a country outside India) or a non-scheduled bank, deduction is allowable in respect of any provision for bad and doubtful debt made by such bank at an aggregate of the amount not exceeding 5% of the total income and 10% of the aggregate average advances made by its rural branches.

In order to strengthen the financial position of the banks, the Bill proposes to give an option to such banks, for a period of five years to claim a deduction for any provision made by it in respect of doubtful or loss assets in accordance with the guidelines issued by the Reserve Bank of India for an amount not exceeding 5% of such loss or doubtful assests.

The proposed amendment will take effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years up to the assessment year 2004-2005.

Deduction for interest payable to co-operative banks to be allowed on actual payment basis

The existing provisions of section 43B interalia, allows deduction in respect of interest payable on any term loan from a scheduled bank of actual payment basis and not on accrual basis. The Bill proposes to include a co-operative Bank within the meaning of a scheduled bank for the purposes of allowing deduction in respect of interest on such term loans.

The proposed amendment will take effect from 1st April, 2000 and will, accordingly, apply in relation to assessment year 2000-2001 and subsequent years.