Date:15/03/2006 URL: http://www.thehindubusinessline.com/2006/03/15/stories/2006031504220600.htm

Back Tax breaks for co-op term deposits urged

Sarbajeet K. Sen

Non-scheduled institutions fear flight of deposits

Plea for sops
The selective incentivisation to keep moneys with scheduled banks should be corrected and the proposal should cover all banks uniformly.

New Delhi , March 14

Days ahead of the discussion on the Finance Bill, 2006, in Parliament, the co-operative banking sector is mounting pressure on the Government to widen the scope of the proposed amendment to Section 80C of the Income-Tax Act that seeks to allow tax breaks for term deposits of a minimum of 5-years maturity held with scheduled commercial banks.

Fearing a massive one-way flight of deposits to scheduled banks, the co-operative banking sector has said that the proposed amendment should be made applicable to deposits of similar maturity placed with any entity carrying out banking activity under a licence from the Reserve Bank of India and not be limited to deposits placed with `scheduled commercial banks'. An overwhelming majority of co-operative banks do no enjoy scheduled bank status as per the RBI Act.

Section 80C provides a deduction of Rs 1 lakh for sums paid or deposited in certain specified schemes such as life insurance schemes, pension funds and infrastructure bonds. Tax assessees are free to choose from any one or more of the specified schemes within the overall cap.

Under persistent demand from the banking industry, the Finance Minister, Mr P. Chidambaram, has proposed in the Union Budget for 2006-07 that term deposits of 5-years or more with a SCB would also be included in the list.

Bias must go

In a communication to the Government, the co-operatives banks have said that the bias towards `scheduled banks' as regards the proposed amendment should be done away with. "The selective incentivisation to keep moneys with scheduled banks should be corrected and the proposal should cover all banks uniformly," the National Federation of Urban Cooperative Bank and Credit Societies (NAFCUB) has said.

The Federation has pointed out that only a few co-operative banking institutions find themselves in the list of scheduled banks. "Very few co-operative banks are given scheduled status. It is apprehended that the non-scheduled urban banks and the non-scheduled State and district co-operative banks may now face flight of deposits to scheduled commercial banks at their respective centres," NAFCUB has said.

Talking to Business Line, Mr D. Krishna, Chief Executive, NAFCUB, said that barely 55 urban co-operative banks (UCBs) out of a total of nearly 1,800 banks enjoyed the status of SCBs. "Deposit of matching maturity placed with all those who have a banking licence from RBI should be eligible for the tax incentives. Otherwise it would be a great blow to many cooperative banks," Mr Krishna said.

He argued that there would not be a single place where a non-scheduled co-operative bank is present without another branch of a SCB being in the vicinity. .