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NPA Interest Tax Relief Proposal: Government Review

9 June 20251 min read
BANKING & FINANCENPA Interest TaxRelief Proposal:GovernmentReview9 June 2025safalsetu.com

Why in the news

The government was examining a banking request to amend the Income Tax Act so that NPA tax rules follow RBI’s approach, easing tax on interest not yet received.

FrameworkLoan counts as NPA when
RBI normsoverdue beyond 90 days
Income Tax Actoverdue beyond 6 months

Key facts – proposals

  • Section 43D: tax notional NPA interest only once realised or credited.
  • Section 36(1)(viia): deductible provisioning to rise from 8.5% to 15% of gross income, for banks, NBFCs and housing finance companies.

Review

  • Inputs reached the Department of Financial Services in May 2025, which flagged them to the Department of Revenue.
  • A committee with tax officials, industry and ICAI was reviewing the draft Income Tax law.

Significance

  • No tax on unrealised income; more realistic reporting; fewer disputes in court.

Test yourself

1. Under RBI norms, a loan becomes an NPA when interest or principal is overdue for more than how long?

RBI uses a 90-day overdue test; the tax law uses 6 months.

2. Banks proposed amending which Income Tax Act section to avoid taxing notional interest on NPAs?

The proposal concerned Section 43D on notional NPA interest.

3. Lenders sought to raise tax-deductible NPA provisioning from 8.5% to what share of gross income?

The proposal under Section 36(1)(viia) was a rise to 15%.

This topic is part of Daily Current Affairs 8 & 9 June 2025 (15 topics).

All topics of the dayDay quizJune 2025

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