CBDT’s Notification No. 79/2023 on NBFC Classification for Income Tax

The financial landscape in India is subject to constant regulatory changes and notifications from government bodies. One such recent development is Notification No. 79/2023, issued by the Ministry of Finance and the Central Board of Direct Taxes (CBDT) on 22nd September, 2023. This notification pertains to the classification of non-banking financial companies (NBFCs) for the purpose of income tax assessment. In this article, we dive into the details of this notification, its implications, and how it affects the NBFC sector.

This notification derives its authority from section 43D of the Income-tax Act, 1961. Its primary objective is to specify the categories of NBFCs that fall under this specific section for income tax purposes. The notification classifies NBFCs into three distinct layers, as follows:

1. Top Layer NBFCs: This category includes all NBFCs classified in the top layer. The criteria for this classification are determined by the guidelines set forth by the Reserve Bank of India (RBI). These guidelines can be found in Circular DOR.CRE.REC.No.60/03.10.001/2021-22, dated October 22, 2021.
2. Upper Layer NBFCs: NBFCs that meet the criteria for the upper layer classification based on RBI’s guidelines fall into this category.
3. Middle Layer NBFCs: NBFCs that align with the middle layer classification criteria established by the RBI fall under this category.

The RBI’s circular provides detailed parameters and criteria for these classifications, ensuring transparency and consistency in determining an NBFC’s layer.

Notification No. 79/2023 specifies that its provisions and the associated classifications shall come into effect from the date of publication in the Official Gazette i.e. 22nd September 2023. This means that the categorization of NBFCs, based on layers determined by RBI guidelines, will be applicable for income tax assessment from 22nd September 2023.

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Ministry of Finance
(Department of Revenue)
(Central Board of Direct Taxes)
New Delhi

Notification No. 79/2023-Income Tax Dated: 22nd September, 2023

S.O. 4192(E).—In exercise of the powers conferred by section 43D of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the following classes of non-banking financial companies (NBFCs), for the purpose of the said section, namely:–

(a) all NBFCs classified in the Top Layer;

(b) all NBFCs classified in the Upper Layer;

(c) all NBFCs classified in the Middle Layer.

Explanation.–he classification of NBFCs in the Top Layer, Upper Layer and Middle Layer shall be according to the Reserve Bank of India’s guidelines contained in Circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021.

2. This notification shall come into force from the date of its publication in the Official Gazette.

[Notification No. 79/2023/ F. No.370142/31/2023-TPL]

JIVITESH ANAND, Under Secy.