ARCs push for tax change to boost NPA investments
Asset reconstruction companies (ARCs) want the government to let Alternative Investment Funds (AIFs) pass income from security receipts (SRs) directly to investors for tax purposes.
Right now, this income faces a steep 42.74% tax at the fund level, which ARCs say makes investing less attractive and slows down efforts to fix bad loans.
Why does this matter?
When ARCs buy bad loans from banks, they issue SRs to investors.
But any gains are taxed twice—first at the fund, then again when passed on—making it less appealing for people to invest.
With pass-through status, only investors would pay tax on what they earn, cutting out double taxation and hopefully bringing in more money to clean up non-performing assets.
What are ARCs asking for?
ARCs are suggesting a 5% tax on interest earned by foreign investors from SRs and a 20% rate on profits.
A committee set up by the Reserve Bank of India recommended aligning SR income with income from other securities.