Nafcub President Jyotindra Mehta has written a letter to the Union Finance Minister bringing into focus the expectations of the co-op sector from the budget. Mehta has touched almost all the issues plaguing different sectors including UCBs, Credit Co-op, Income Tax and many others.
We will reproduce the same sector wise till the budget day. Today we have taken up the issues related to the Ministry of Finance.
Mehta says that NAFCUB has already submitted a letter to the Union Finance Minister Smt Nirmala Sitharaman and MoS for Finance Dr Bhagwat Karad which includes issues for consideration of Union Budget and other issues relating to the Central Government and to the RBI.
“We append below the issues made in our submission with the explanation in the submissions on each issue, for your benefit. Follow up will be made on these points. If the federations/banks have any additional issues, they may forward the same to us so that we could make additional submissions to the Hon’ble Finance Minister”, writes Mehta.
The letter demands “Restoration of Deduction u/s 80P(2) to UCBs”. Till 2006 the UCBs were enjoying benefits of Income Tax Deduction u/s 80P(2) of Income Tax Act, 1961. However, the insertion of sub-section (4) to section 80P of this Act w.e.f. 01.04.2007 has deprived the UCBs from this vital deduction available to them under this section toll A.Y. 2007-08.
This has led to higher tax liabilities for UCBs which are eating into their Reserves. Since the majority of UCBs are small and are member-driven banks, they are finding it difficult to pay higher income tax.
“On behalf of our member UCBs, it is requested that the said sub-section (4) of section 80P be abolished so that the deduction available u/s 80P(2) prior to A.Y. 2008-09 is restored to UCBs and they are enabled to effectively serve the large strata of population who are of limited means”, reads the letter.
Nafcub letter also demands Inclusion of deposits with non-scheduled cooperative banks for eligibility under Sec.80(c)(xxi) of the Income Tax Act 1961.The clause (xxi) was introduced to Sec.80(C) of the Act in 2006 to include term deposit for a fixed period of not less than 5 years with a scheduled bank to be included as investments eligible for deduction for the purposes of Sec.80(c).
Of the 1539 urban cooperative banks, only 54 are scheduled banks. The non-scheduled urban cooperative banks are excluded from this benefit and they are disadvantaged on account of this discrimination as compared to Scheduled UCBs and Nationalized Banks.
This is leading to shifting of Deposits from non-scheduled cooperative banks to scheduled banks. Since very few centers in the Country have scheduled cooperative banks, the lower/middle class depositors from far-off cities in the Countryside are finding not many options to invest in such deposits with UCBs.
However, the non-scheduled cooperative banks being large in numbers and spread over almost in every town, are better placed to serve such depositors in a localized environment and easy-accessibility at a very low cost and effort. In case the non-scheduled cooperative banks are extended the eligibility to accept deposits enjoying deduction u/s 80C of Income Tax Act, 1961, such depositors will have not only higher number of options but also find it easy to invest in those non-scheduled UCBs available in their neighborhood or are having easy proximity.
Accordingly, it is submitted that the clause (xxi) be amended to i) include the words “and a cooperative bank” after “scheduled bank”; ii) add in the explanation “and a cooperative bank means a State Cooperative Bank, a Central Cooperative Bank and a Primary Cooperative Bank, as defined in Sec.5 (as modified by Sec.56(AACS) (cci) of the Banking Regulation Act 1949”.
Immediately implement the suggesstions given by NAFCUBon the issue of Incone tax restoration provisions of 80P and allow all co -operative banks to seek deposites having benefit of 80 C