Tax for banks, NBFCs and finance providers in India

Lending and deposit-taking carry their own tax rules. A banking company gets a bad-debt provision deduction under Section 36(1)(viia) that an NBFC generally does not, and NPA interest is taxed on receipt (not accrual) for banks and notified NBFCs under Section 43D. On the customer side, banks deduct 194A TDS at 10% on deposit interest over Rs 50,000 a year (Rs 1,00,000 for senior citizens), the threshold raised on 1 April 2025, and depositors below the taxable limit can file Form 15G/15H. For co-operatives, the Section 80P deduction survives for primary credit and agricultural societies but Section 80P(4) excludes full-fledged co-operative banks.

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec Not available (financial business, books required)
Deemed profit rate:: N/A
Classification:: business

GST treatment

Slab:: 18%
SAC:: financial and lending services 18%; interest on loans/deposits is exempt; fee and commission income taxable
Composition eligible:: No
Reverse charge (RCM):: Not applicable

TDS exposure

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

Lending and deposit-taking carry tax rules that differ from an ordinary business. A banking company gets a bad-debt provision deduction under Section 36(1)(viia) that an NBFC generally does not, and interest on non-performing assets is taxed on receipt rather than accrual for banks and notified NBFCs under Section 43D. On the customer side, the rule that touches most people is depositor-interest TDS: a bank, co-operative bank or post office deducts 10% TDS on deposit interest once it crosses Rs 50,000 a year (Rs 1,00,000 for senior citizens). And for co-operatives, the Section 80P deduction survives for primary credit and agricultural societies but no longer for full-fledged co-operative banks.

What business structure do banks, NBFCs and finance providers use?

The common patterns for banks, NBFCs and finance providers are: Co-operative credit society, for a member-based lender (80P, if not a co-op bank), NBFC (RBI-registered), for non-deposit lending and investment, Banking company (RBI-licensed), for deposit-taking and lending. The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

Bank vs NBFC: bad-debt provision and NPA interest

A banking company (RBI-licensed, deposit-taking) gets a bad-debt provision deduction under Section 36(1)(viia), broadly up to 7.5% of adjusted total income (8.5% for some categories) plus 10% of average rural-branch advances, alongside the actual write-off under Section 36(1)(vii). An NBFC generally does not get the 36(1)(viia) provision and relies on the actual write-off only. Section 43D taxes interest on non-performing assets on receipt (not accrual) for scheduled banks and notified NBFCs, mirroring the RBI 90-day NPA norm; an NBFC not notified under 43D is taxed on accrual, creating a timing mismatch with the prudential rules.

Banks get a bad-debt provision deduction under 36(1)(viia) (NBFCs generally do not); NPA interest is taxed on receipt for banks and notified NBFCs under 43D. (Income-tax Act 1961 s.36(1)(viia) (provision) + s.36(1)(vii) (write-off) + s.43D (NPA interest on receipt) (re-enacted in the Income-tax Act 2025))

Depositor-interest TDS: Section 194A (raised thresholds)

The rule that touches ordinary customers most is TDS on deposit interest. A bank, co-operative bank or post office deducts TDS under Section 194A at 10% (20% without PAN) on interest, once it exceeds the threshold, which was raised on 1 April 2025 to Rs 50,000 a year (Rs 1,00,000 for senior citizens). Savings-account interest is generally not subject to TDS. A depositor whose total income is below the taxable limit can file Form 15G (or 15H if a senior) to ask the bank not to deduct, and can use a Section 197 lower or nil certificate where appropriate.

Banks deduct 194A TDS at 10% on deposit interest over Rs 50,000 a year (Rs 1,00,000 for seniors), raised on 1 April 2025; Form 15G/15H avoids deduction where income is below the limit. (Income-tax Act 1961 s.194A (deposit-interest TDS; thresholds raised 1 April 2025) (Income-tax Act 2025 s.393); Forms 15G/15H + s.197 (lower/nil certificate))

Co-operatives: 80P survives, co-op banks excluded

A co-operative society engaged in providing credit to members, marketing or processing members' produce, or similar activities gets a 100% deduction of that income under Section 80P, and interest or dividend from another co-operative is fully deductible under 80P(2)(d). But Section 80P(4) excludes a full-fledged co-operative bank from the deduction, so only primary agricultural credit societies and similar primary societies meaningfully benefit now. This is why a member-based credit society is taxed very differently from a co-operative bank, the deduction turns on whether you are a primary society or a bank.

A co-operative credit or agricultural society gets a 100% deduction under Section 80P, but Section 80P(4) excludes full-fledged co-operative banks. (Income-tax Act 1961 s.80P (co-operative deduction) + s.80P(4) (co-op-bank exclusion) (Income-tax Act 2025 s.149))

Allowable expenses

Category	Examples	Tax treatment
Cost of funds	Interest paid on deposits and borrowings	Deductible against finance income
Bad debts	Provision (banks, 36(1)(viia)) / write-off (36(1)(vii))	Deductible per the applicable section; no double claim
Operations	Branch costs, staff, technology, compliance	Deductible business expense
Regulatory	RBI/registrar compliance, audit	Deductible business expense
Admin	Accounting, legal, recovery costs	Deductible business expense

Vehicle and travel costs

Vehicles used in the business (field collection, branch operations) are deductible under regular books; finance businesses keep full books and do not use presumptive taxation.

Capital allowances and equipment

Banking and finance businesses keep full books and depreciate premises, technology and equipment under normal rates; presumptive taxation (44AD) is not available to them.

Worked example

Sahyadri Credit Society — Kolhapur, MH

primary co-operative credit society serving members (2026-27)

Provides credit to its members and earns interest on member loans, plus some interest from deposits with another co-operative. It is a primary credit society, not a co-operative bank.

As a primary credit society (not a co-operative bank), it claims the Section 80P deduction on its income from providing credit to members, and the interest from the other co-operative is fully deductible under 80P(2)(d). Had it been a full-fledged co-operative bank, Section 80P(4) would exclude it from the deduction. On the deposits it holds for members, it deducts 194A TDS at 10% on interest over Rs 50,000 a year (Rs 1,00,000 for senior members), and accepts Form 15G/15H from those below the taxable limit.

Common audit triggers for banks, NBFCs and finance providers

An NBFC claiming the 36(1)(viia) bad-debt provision (generally banks only)
Double-claiming a provision and a write-off on the same debt
A co-operative bank claiming the 80P deduction (excluded under 80P(4))
An NBFC not notified under 43D taxing NPA interest on receipt instead of accrual
Not deducting 194A on depositor interest over the threshold
Fee and commission income treated as exempt (only interest is exempt under GST)

Frequently asked questions

At what point does my bank deduct TDS on interest?+

On fixed and recurring deposit interest, once it exceeds Rs 50,000 a year (Rs 1,00,000 for senior citizens), at 10% (20% without PAN) under Section 194A. The thresholds were raised on 1 April 2025. Savings-account interest is generally not subject to TDS. If your total income is below the taxable limit, file Form 15G (or 15H if you are a senior) to ask the bank not to deduct.

What is the tax difference between a bank and an NBFC?+

A banking company gets a bad-debt provision deduction under Section 36(1)(viia) (broadly 7.5 to 8.5% of income plus a rural-advances component), while an NBFC generally relies on the actual write-off under 36(1)(vii) only. Section 43D also taxes NPA interest on receipt for banks and notified NBFCs; an NBFC not notified under 43D is taxed on accrual, a timing mismatch with the RBI norms.

Does a co-operative bank still get the 80P deduction?+

No. Section 80P(4) excludes a full-fledged co-operative bank from the deduction. The Section 80P deduction now meaningfully benefits only primary agricultural credit societies and similar primary societies providing credit to members. So a member-based credit society and a co-operative bank are taxed very differently, the deduction turns on which one you are.

Can a finance business use presumptive taxation?+

No. Banking, NBFC and finance businesses keep full books of account and are taxed on actual profit, presumptive taxation under Section 44AD is not available to them, and the sector has specific rules (36(1)(viia), 43D, 194A) instead. The presumptive simplification is for small trading, service and professional businesses, not for lenders.

Last reviewed: 29 May 2026