Extract of the Notification-79/2023
NBFC Classification for the Purpose of Section 43D: The Central Board of Direct Taxes (CBDT) has recently issued a crucial notification, Number 79/2023 dated September 22, 2023. This notification pertains to the classification of Non-Banking Financial Companies (NBFCs) in accordance with section 43D of the Income Tax Act, 1961. The notified classifications encompass the following three distinct layers within the NBFC sector:
(a) all NBFCs classified in the Top Layer;
(b) all NBFCs classified in the Upper Layer;
(c) all NBFCs classified in the Middle Layer.
Provision under Section 43D of Income tax Act
Section 43D of the Act introduces a specialized provision regarding treatment of interest income for deposit-taking Non-Banking Financial Companies (NBFCs) and Systemically Important Non-Deposit taking NBFCs. Specifically, it addresses interest income linked to certain categories of bad or doubtful debts earned by these financial entities. According to this provision, such interest income is subject to taxation in the fiscal year in which it is credited to the profit and loss account or when it is actually received, whichever occurs earlier.
Subsequent to this notification, in the section 43D, the phrase “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company” would be updated to “such class of non-banking financial companies as notified by the CBDT after the notification in the Official Gazette by the central government in this behalf.” This amendment enhances the flexibility and adaptability of the clause, allowing for more precise categorization of non-banking financial companies as notified by the Central Government. It aims to streamline regulatory procedures and ensure that the Act remains current and aligned with evolving financial landscapes. Stay updated with these changes for a comprehensive understanding of the applicable regulations and their implications.
This provision streamlines the tax treatment for interest income related to problematic debts of such classes of NBFCs. By ensuring timely taxation in alignment with credited income, it facilitates a clearer financial reporting process. Adhering to these guidelines is crucial for maintaining transparency and compliance within the financial operations of these institutions.
Notification No-79/2023
Conclusion
Adhering to the provisions of Section 43D of the Income Tax Act holds significant importance, particularly in ensuring accurate recording of interest income by such specified NBFCs. It’s imperative for them to stay informed about the recent update by the department regarding the classification of Non-Banking Financial Companies (NBFCs). This knowledge should be integrated into their approach when preparing financial accounts and tax audit reports for the fiscal year 2023-24. By doing so, they can effectively align their financial practices with the updated regulations, promoting compliance and transparent financial reporting.
Follow the Link to download the Notofication-https://incometaxindia.gov.in/communications/notification/notification-79-2023.pdf
You may also Like–https://anptaxcorp.com/cbdt-notifies-nbfc-classification-for-clause-da-of-section-43b/