Non-Banking Financial Company (NBFC) categorization – Budget 2023
Section 43B of the Act provides, inter-alia, that any sum payable by the assessee as interest on any loan or borrowing from a Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company shall be allowed as deduction on payment basis. It can be allowed on accrual basis if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.
2. Section 43D of the Act provides, inter-alia, for special provision in case of income of deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Interest income in relation to certain categories of bad or doubtful debts received by such deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or actually received, whichever is earlier.
3. Section 43B and section 43D of the Act currently use two erstwhile categories of NBFC namely, Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Such classification for non-banking financial companies is no longer followed by the Reserve Bank of India for the purposes of asset classification.
4. In view of the above, it is proposed to amend section 43B and section 43D of the Act, to substitute the words, “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company”, for the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf”.
5. These amendments will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-2025 and subsequent assessment years.
[clauses 13 & 14]
Extract of relevant clause of Finance Bill 2023
Clause 13 of the Bill seeks to amend section 43B of the Income-tax Act relating to certain deductions to be only on actual payment.
It is proposed to amend clause (da) of the said section, to substitute the expression “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company” with “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf”.
It is further proposed to insert a new clause (h) to the said section so as to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 shall be allowed as deduction only on actual payment.
It is also proposed to amend the proviso to the said section so as to not allow the deduction on accrual basis, if the amount is paid by due date of furnishing the return of income in the case of micro or small enterprises.
It is also proposed to substitute clause (e) and clause (g) of Explanation 4 to define the expressions “micro enterprise” and “small enterprise” for the purposes of the said section.
These amendments will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Clause 14 of the Bill seeks to amend section 43D of the Income-tax Act relating to special provision in case of income of public financial institutions, public companies, etc.
It is proposed to amend the said section to substitute the expression “a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company” with “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf”.
It is further proposed to substitute clause (h) of the Explanation to the said section to define the expression “non-banking financial company”.
These amendments will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
13. Amendment of section 43B
In section 43B of the Income-tax Act, with effect from the 1st day of April, 2024,––
(i) in clause (da), for the words “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company”, the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf” shall be substituted;
(ii) in clause (g), after the word “assets,”, the word “or” shall be inserted;
(iii) after clause (g), the following clause shall be inserted, namely:––
“(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006,”;
(iv) in the proviso, after the words “nothing contained in this section”, the brackets, words and letter “[except the provisions of clause (h)]” shall be inserted;
(v) in Explanation 4,––
(I) for clause (e), the following clause shall be substituted, namely:––
‘(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006;’;
(II) for clause (g), the following clause shall be substituted, namely:––
‘(g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.’.
14. Amendment of section 43D.
In section 43D of the Income-tax Act, with effect from the 1st day of April, 2024,––
(i) in clause (a), for the words “a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company”, the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf” shall be substituted;
(ii) in the long line, for the words “a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company”, the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf,” shall be substituted;
(iii) in the Explanation, for clause (h), the following clause shall be substituted, namely:––
‘(h) the expression “non-banking financial company” shall have the meaning assigned to it in clause (vii) of the Explanation to clause (viia) of sub-section (1) of section 36.’.
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