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Government may reduce tax for foreign banks in the budget, up to 15% reduction possible

The government may propose to cut tax for foreign banks with local branches. With this move, the tax rates for them can be cut by up to 15 percentage points.

The government may propose to cut tax for foreign banks with local branches.

Budget 2022: The government may propose to cut tax for foreign banks with local branches. With this move, the tax rates for them can be cut by up to 15 percentage points. According to a Livemint report, two government officials told him that the tax rate for them could be reduced to 22 per cent.

According to the report, the person told that they are looking into the matter. The announcement related to this can be mentioned in the coming budget. He said that the Finance Ministry is looking into the recommendation made by some foreign lenders.

Foreign banks pay more tax than domestic

Foreign banks pay more tax than domestic lenders. Because the deduction in corporate tax in the previous years does not apply to them. Where they may be taxed at a lower rate, if they convert their operations into a subsidiary. Only a few have opted to do so because of the operational complexities and regulatory challenges involved.

Banks have asked the government to treat them on a par with Indian banks as they are subject to similar regulations and rules and they use the same method to calculate profits and taxable income. According to the report, a person with knowledge of the matter said that where domestic banks have opted for a lower rate of 22 per cent (plus surcharge and cess) under the tax rules. At the same time, foreign companies do not have the option of this same tax rate, which creates a huge disparity. Branches of foreign banks are taxed at the base rate of 40 per cent plus surcharge and cess.

Uniformity of tax rates in most countries

The official said that for branches of foreign companies, there should be parity in corporate tax with domestic companies, which will be in line with the corporate tax parity at the global level. He further said that except India, all BRIC countries and most OECD countries treat foreign and local entities equally.

So far no response has been given by the Finance Ministry on the matter. According to experts, the tax structure in India makes the difference between 12 and 15 percent for foreign banks. So if the government reduces the tax for foreign banks, it will help in its functioning here. According to him, foreign banks have the option to convert their operations into subsidiary operations to pay tax at a lower rate. But there are regulatory challenges and operational complexities, including changes in lending rules, etc.

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Shehnaz Ali
Shehnaz is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing about Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.
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