Deduction in respect of provision for bad and doubtful debt in the case of Non-Banking Financial companies.

Union Budget 2016: Under the existing provisions of sub-clause (c ) of clause (viia) of sub-section (1) of section 36 of the Act, in computing the profits of a public financial institutions, State financial corporations and State industrial investment corporations a deduction, limited to an amount not exceeding five per cent of the gross total income, computed, before making any deduction under the aforesaid clause and Chapter VI-A, is allowed in respect of any provision for bad and doubtful debt.

Considering the fact that Non-Banking Financial companies (NBFCs) are also engaged in financial lending to different sectors of society, it is proposed to amend the provision of clause (viia) of sub-section (1) of section 36 so as to provide deduction from total income (computed before making any deduction under this clause and Chapter-VIA) on account of provision for bad and doubtful debts to the extent of five per cent of the total income in the case of NBFCs.

This amendment will take effect from 1stApril, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

Clause 21 of Finance Bill 2016

Clause 21 of the Bill seeks to amend section 36 of the Income-tax Act relating to other deductions.

The existing provisions contained in clause (viia) of sub-section (1) of the aforesaid section provide for deduction in respect of any provision for bad and doubtful debts made by certain entities.

It is proposed to insert a new sub-clause (d) in clause (viia) of sub-section (1) of the aforesaid section so as to provide that any provision for bad and doubtful debts made by a non-banking financial company shall be allowed a deduction of an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A).

It is also proposed to define the expression “non-banking financial company”.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.

[Clause 21]

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