Date:27/01/2006 URL: http://www.thehindubusinessline.com/2006/01/27/stories/2006012702911600.htm

Back Asset reconstruction cos seek clarity on tax implications

K.R. Srivats

New Delhi , Jan 26

THE Financial Services Industry wants the tax authorities to give guidance on the tax treatment that would be applicable for certain fund-based activities such as those carried out by the asset reconstruction companies (ARCs).

A representative of financial services industry said at an international tax conference here that there is a need for clarity on whether the loss arising on transfer of non-performing loans to an ARC would be treated as a business loss for the transferor for tax purposes or would it be treated as write-off or bad loans.

It was being contended that loans are usually held as trading assets and therefore should generally be treated as business loss.

There is also need for clarity on whether ARCs would be treated as tax pass-through or not.

According to financial services industry representatives, characterisation of ARCs as pass-through, on the same lines of mutual funds, would facilitate development of the market.

Informed sources said that ARCs are relatively a new phenomenon in the country and the tax department has not so far explicitly indicated the tax implications for such entities.

"Tax authorities need to pace themselves on reforms and more particularly address challenges in financial services industry with respect to taxation," Mr Aseem Chawla, Director-taxation, Amarchand & Mangaldas, told Business Line.