Foreign banks to get relief in budget: Preparations underway to reduce taxes

New Delhi: The government has successfully woken up after the flight of giant global banks from India. With one foreign bank after another showing readiness to wrap up Indian business, the government may come forward to address their concerns.

The government is considering a proposal to offer the same tax rate on the business of foreign banks in India as on domestic banks, two government officials said in a report. The finance ministry is considering reducing the tax rate on foreign banks from 15 per cent to 5 per cent.

The government is considering a submission and presentation made by some foreign lenders to Nirmala Sitharaman's department. An important announcement on this issue could be made in the next budget, the official added.

It may be mentioned here that foreign banks pay significantly more taxes in India than domestic lenders. The reduction in corporate tax rates in the last few years does not apply to the Indian business of foreign banks. If foreign banks convert Indian businesses into subsidiaries, their taxability would be reduced to that of local banks, but given the complexities involved and regulatory challenges, foreign banks are not choosing this option.

Domestic banks have opted for a lower rate of 5% (surcharge and cess plus) under the tax law but this option is not available to foreign companies.

In addition to the 20 per cent basic tax, surcharges and cess are also levied by foreign banks. This double standard has created huge inequality in the Indian business of foreign banks.

Foreign banks have asked the central government to do the same with Indian banks. The same method is used to calculate profit and taxable income.