Centre Mulls Tax Relief for Banks on NPA Interest Income

The central government is considering a proposal to provide tax relief to banks on the interest income they recognize from Non-Performing Assets (NPAs). Currently, banks are often required to pay tax on interest income from NPAs on an accrual basis, even though the interest is not actually received in cash. This creates a significant cash flow mismatch and adds to the financial strain on banks, especially during economic downturns. The proposal, reportedly under review by the Central Board of Direct Taxes (CBDT), suggests amending tax laws to allow banks to pay tax on such income only upon actual receipt, not on an accrual basis. This would align the tax treatment with the real income principle and the provisioning norms set by the Reserve Bank of India, providing much-needed liquidity and a more accurate financial picture for the banking sector.