What is the wish list of the Banking industry for the Bugdet? Such a list was presented by chairmen and managing directors of public sector banks to Finance Minister P Chidambaram when he met them recently to solicit their views on Budget 2008-09.

The importance of the meeting was that never has Chidambaram met bank chiefs exclusively on the issue of the Budget.

Broadly the suggestions made by bank chiefs related to the following subjects; deductions on contributions towards recognised Provident Fund or Approved Superannuation Fund; deductions on contributions to approved gratuity funds in excess of 8.5 per cent per annum of salary; change in norms for provisions for bad and doubtful debts; banks be granted exemption from TDS under section 196; problems pertaining to Fringe Benefit Tax (FBT) under Section 115 WB namely contribution to superannuation fund; and international transfer pricing regulations and exclusion of banks from the purview of certain sections.

In the case of deductions on contributions towards recognised Provident Fund or Approved Superannuation Fund the Banks wanted that the limit of 27 per cent prescribed under Rule 87 should be done away with for entities administering defined benefit schemes of pension, the terms of which have been approved by the government.

The bank chiefs argued that taking into account the burden of pension liabilities under a defined benefit scheme, in the context of Accounting Standard (AS) 15 and increase in the life expectancy over the past 45 years from the time the Income Tax Rules 1962 came into effect, there was need to dispense with the limit.

Further, they said, the rules were framed in the past keeping in mind defined contribution schemes rather than defined benefit schemes. The defined benefits under the pension schemes administered by the PSBs are also cleared by the government and therefore there was a strong case for removing the ceiling of 27 per cent prescribed under Rule 87.

The banking industry wanted an amendment in Rules 103 and 104 of the Income Tax Act Rules allowing the employers to make ordinary or initial contribution to the Approved Gratuity Fund as required by Accounting Standard (AS)-15 and not restricting to 8.5 per cent of salary.

The bankers suggested that the present provision for bad and doubtful debts available under section 36 (1) (viia) may be replaced an allowance based on actual provisioning made as per the RBI guidelines. At present a bank or a financial institution has to make provision for bad and doubtful debts in accordance with guidelines issued by RBI. The guidelines are mandatory and not merely advisory.

RBI carries out inspections to ensure that NPAs of the Banks and FIs are classified in accordance with RBI norms and provisioning is made as per the guidelines.

They said there was considerable divergence between provisions made under RBI guidelines and that admissible under the IT Act.

The bankers suggested that the Income Tax law be amended to allow mandatory provision made by a bank or a financial institution as per RBI guidelines, as a deduction and to tax any write back of such provision. Thus, they said, the present provision for bad and doubtful debts available under section 36 (1) (viia) may be replaced by an allowance based on actual provisioning made as per RBI guidelines.

The Bankers suggested that Banks be granted exemption from TDS under section 196.

They also wanted an explanation be inserted under clause (c) of sub-section (1) of Section 115 WB stating that for the purpose of this clause any contribution by a scheduled bank to a pension fund for employees created in lieu of provident fund should not be considered as an FBT.

Regarding deductions under Section 10(23) (G), the bank chiefs said the section helped in channelising the investments in infrastructure sector. The banks while fixing interest rates for such infrastructure projects took tax benefit available into account.

Deletion of this section has resulted in increase in tax liability to the banks and also to the borrowers. Therefore, this section should be introduced as infrastructure will remain a key focus in the future.