NHB introduces Aadhaar based OTP for HFCs

By Mayank Agarwal (finserv@vinodkothari.com)


The National Housing Bank (NHB) has introduced various reforms to the existing Aadhaar based e-KYC procedure vide Circular No.85[1] issued on 8th December, 2017. Bringing certain modifications to Circular No. 72[2] issued on 23rd April, 2015 which recognizes E-Aadhaar as an Officially Valid Document (OVD) under the PML Rules, NHB has further introduced an option of Aadhaar based One Time Pin (OTP) for carrying out e-KYC  of the prospective customer.

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Standard Procedure for Valuation to be followed by HFCs.

By Shreya Routh, (finserv@vinodkothari.com)


Housing Finance Company (HFC) is a type of non-banking financial institution which is primarily engaged in the business of providing home loans and other related products. Unlike other Non-Banking Financial Companies which are governed under the regulatory framework of RBI, HFCs are regulated by the National Housing Banks (NHB). Collateral securities are accepted against loans advanced by HFCs which include the property for which loan has been granted and some other collaterals as well. Since properties serve as the underlying asset on which financing is given, the amount of loan advanced depends upon the value of the collateral offered. Read more

NHB softens provisioning norms for HFCs

By Anita Baid, (legal@vinodkothari.com)

The National Housing Bank (NHB) vide its notification no. NHB.HFC.DIR.18/MD&CEO/2017[1] dated 02nd August, 2017 has made certain amendments to the Housing Finance Companies (NHB) Directions, 2010 (‘Directions’). The provisions of the Directions is applicable to every housing finance company (HFC) registered under section 29A of the National Housing Bank Act, 1987. A brief summary of the amendments and the possible impact thereon is provided herein below.

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Tax Provisions for HFCs, by Somesh Lund

The Income Tax Act, 1961[1] does not contain specific provisions relating to Housing Finance Companies (HFCs). Thus, all the general provisions for computation of income shall apply to HFCs. It can also be established that as the main source of income of HFCs is interest, income will be computed under section 28 to 43 of the Income Tax Act, 1961 pertaining to “Profits and gains from Profession and Business”

However, looking at the business HFCs conduct some sections become specifically applicable. These provisions are mentioned hereunder:-

Tax Provisions applicable to HFC


This section pertains to the debt which is written off as irrecoverable loans advanced by banking or money-lending concerns. Under this section deduction is allowed in respect of the bad debts of the business which have become irrecoverable in the previous year. The deduction will be allowed only if:-

  1. The bad debt has been written off in the books of accounts ;
  2. The debt must have been taken into account in computing the income of the HFC in any of the previous years;
  3. The debt should be direct relation to the business to the

Section-36(1)(vii a)

While computing business income of the HFC, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities up to a maximum of 5% of total income (computed before allowing this deduction and deductions u/s 80). Deduction u/s 36(1)(vii)  will be limited to the excess of such debt over the credit balance in the provision for bad and doubtful debts account.

For Example:-

An HFC has a total bad debt of INR 100. It has also INR 80 in the bad debt provision account.

When the debt is considered as irrecoverable only INR 20 will be deductible under section 36(1)(vii). The remaining INR 80 will not be deductible as it has already been deducted from the company’s income when the amount was transferred to the bad debt provision account in that particular year.

As per this provision of the Income Tax Act, 1961 any money transferred to a special reserve created by any specified entity (which includes housing finance company) is allowed as deduction.

The deduction will be allowed only if:-

  1. The amount transferred does not exceed 25% of the profits earned by the company;
  2. The profit should be under the head “Profits and gains of business or profession”;
  3. The amount transferred should be less than twice the amount of paid-up capital and general reserves of the entity.

Section 41(4)

If the amount subsequently recovered is higher than the difference between the debt and the amount so allowed, the excess amount so recovered shall be chargeable to income tax as income of the previous year in which the amount has been recovered.

Section 41(4A)

Where deduction has been allowed in respect of any special reserve created and maintained under Section 36 (1) (viii), any amount subsequently withdrawn shall be deemed to be profits and gains of the business and shall be chargeable to income tax in the year in which such amount is withdrawn.

Section 43D

With regards to NHB guidelines it has been prescribed in the Income Tax Act, 1961 that any interest on bad or doubtful debts of the HFC shall be chargeable to tax in the year in which it is credited to statement of profit & loss or the year in which it is actually received by them, whichever is earlier.


In the recent years HFC have become an integral part of the Indian economic system, and hence, special focus need to be given on this sector. There are several HFCs entering the market and the housing agenda is important to the present government. There are several tax provisions/ schemes/ subventions/ subsidies offered to the sector, the article is a mere attempt to talk about the tax provisions from HFCs’ perspective.

[1] http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

by Soumesh Lund (somesh@vinodkothari.com)

Corporate Governance by HFC- Clarifications from NHB, by Anita Baid

National Housing Bank (NHB) had come out with the Housing Finance Companies – Corporate Governance (National Housing Bank) Directions, 2016”[1] on February 09, 2017 (“Directions”), to strengthen the requirement for compliance of corporate governance and enhance the role of board of directors of the Housing Finance Read more