Quick Summary
The Finance Industry Development Council, a representative body of NBFCs in India, has requested the Reserve Bank of India (RBI) not to classify penal interest as charges due to potential tax implications. In a representation to the RBI, the FIDC said the central banks circular on fair lending practices, which included guidelines on the reasonable and transparent disclosure of penal interest or charges, could create problems. The association highlighted several challenges, such as the
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FAQ :
Finance companies, through the FIDC, are requesting the RBI not to classify penal interest as 'charges' to avoid tax implications.
They want to avoid the potential imposition of Goods and Services Tax (GST) on penal interest, which would create further hardship for customers already in default.
The FIDC stands for the Finance Industry Development Council, which is a representative body for NBFCs (Non-Banking Financial Companies) in India.
The FIDC states that penal interest serves as a deterrent for borrowers against non-compliance and default.
The FIDC suggests that credit risk premium adjustments require a detailed review of a borrower's profile, whereas penal interest can be levied from the date of default to prevent unnecessary delays by the borrower.
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