Promoting MFIs
Changes in Indian income tax rules in the offing
Pallab Bhattacharya, New Delhi
Seeking to ease access of the rural poor to micro credit, a committee constituted by the Indian government is understood to have recommended for changes in the Income Tax rules to promote micro finance institutions (MFIs) and reduce the threshold of foreign equity in non-banking financial services engaged in micro finance activities to attract more foreign capital to this segment. The committee headed by former Reserve Bank of India governor C Rangarajan has also proposed that the MFIs be allowed to send the earnings of marginal and small farmer households, which migrate to more prosperous states and cities of India, for seasonal employment, back to their homes. The committee is understood to have assessed that these farmers remit about Rs 24,000 crore every year by money order through post offices, which charge five percent for delivering the money. The changes in the Income Tax act suggested by the committee include allowing NGOs to invest in companies engaged in undertaking micro finance without prejudicing their tax status, including micro finance as a charitable activity to benefit non-profit MFIs. The committee also suggests that venture capital funds in non-banking financial companies should be allowed. It also recommends for bringing down the threshold of foreign equity in non-banking financial companies to be brought down from 500,000 dollars at present to 50,000 dollars because several social investors are individuals with relatively modest means.
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