Commercial banks, in a pre-Budget submission to the finance ministry, have sought complete abolition of tax deducted at source on interest derived from time deposits and pitched for tax concession for finance extended to exporters.
They also want restrictions on the 'fishing and roving' enquiries that tax officials can make and extension of the benefit of carry forward and set off of accumulated losses and unabsorbed depreciation.
In the larger interest of development of the banking industry, the banks want revocation of Section 194A of the IT Act, 1961, which requires them to deduct TDS on the interest paid on time deposits if the aggregate interest paid/payable in a year exceeds Rs 5,000.
In order to avoid TDS, fragmentation of deposits is taking place and this has resulted in increase in the number of accounts.
Besides increasing banks' transaction costs, fragmentation is making it difficult for them to arrive at the total interest payable to a customer in a year.
Suitable amendment to Section 10 of the I-T Act has been sought so that banks can claim exemption for the interest earned on any loan or advance provided to exporters.
They have argued that I-T Act provides several tax concessions - deductions under Section 89HHC, 80 HHE, exemption under Section 10A/10B - to taxpayers earning foreign exchange.
However, the interest earned by banks on export finance does not enjoy any concession under the I-T Act.
"Banks actively support exporters despite margins being considerably low. Therefore, in order to boost export financing, interest earned by banks on export finance should be made totally exempt from tax," said a senior public sector bank official in the know of developments.
Banks also want that enquiries made by I-T authorities under Section 133(6) of the I-T Act to be 'case specific' and/or 'area specific.'
This plea of the banks is in the context of IT authorities are issuing notices under Section 133(6) of the IT Act, 1961 to banks asking them to furnish information of sweeping nature like (a) cash transactions (deposits/withdrawal), including name, address, account number, date and amount; (b) declaration of assets for loans and overdraft facilities including name, address, account number, date, loan amount, overdraft limit, details of assets with its value, etc.
"Banks cannot divulge information about their clients in view of the need for maintaining secrecy under common law principles based on implied contract. Seeking general information on banks' customers by the tax authorities is like making fishing and roving enquiry which would affect banks' relationship with their customers," said the official.
Assessing Officers are arbitrarily fixing expenses incurred by banks for raising funds for investing in tax-free bonds and shares and are disallowing the income earned therefrom under Section 14A of the IT Act, treating it as expenditure in relation to income not included in total income.
It may not be possible for banks to segregate and identify a specific pool of funds that have been invested and work out the cost on it.
"The CBDT should give clear guidelines on determining cost of funds to avoid litigation," he said.
Run-up to the Budget 2003