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NBFCs seek exemption from MAT
October, 20th 2009

Non-banking financial companies (NBFCs) have sought exemption from minimum alternate tax (MAT) under the proposed direct tax code. The companies have told the finance ministry about their reservations on the code.

In a letter to the finance ministry, the Finance Industry Development Council (FIDC), a lobby of mainly asset-financing NBFCs, has argued that the 2 per cent MAT on gross assets that the code proposes will be a substantial drain on post-tax profits of NBFCs.

The draft direct tax code was released on August 12 and the finance ministry is seeking comments before preparing the final Bill.

The MAT rate of 2 per cent of gross assets assumes a return on assets of at least 8 per centthis assumption is clearly untenable. It is a well-documented fact that NBFCs, like their banking counterparts, work with a return of assets in the range of 1.5 per cent to 2 per cent, the letter said.

Alternatively, NBFCs want MAT linked to book profits instead of gross assets or the base for computation changed from gross assets to net assets.

Alternatively, and at the every least, MAT should be levied at the rate of 0.1 per cent and uniformly applied to all permitted financial institutions, the letter said.

The draft direct tax code has proposed MAT at the rate of 0.25 per cent of gross assets of banks. For other companies, the proposed rate is 2 per cent of gross assets.

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