UPDATE 1-H&R, Jackson Hewitt shares fall on new IRS rule

* IRS to eliminate RAL debt indicator

* H&R Block down 3 pct; Jackson Hewitt drops 23 pct

Aug 5 (Reuters) - Shares of top two U.S. tax preparers H&R Block Inc HRB.N and Jackson Hewitt Tax Service Inc JTX.N fell Thursday on the Internal Revenue Service's decision to eliminate debt indicator for tax-refund loans.

On Thursday, the IRS said starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

RALs are generally popular among lower income group taxpayers and carry high interest. Tax prepares use these loans as a tool to attract more clients.

H&R Block said the new rule will hurt its 2011 profit by 5 cents a share, sending its shares down 3 percent to $14.97.

Jackson Hewitt shares sank 23 percent to 82 cents.

“We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said in a statement.

RALs, also known as tax-refund loans, typically last seven to 14 days until taxpayers receive their refunds from the IRS.

The latest IRS move follows recent criticism of such loans by consumer groups concerned that high U.S. unemployment was forcing more people to borrow short-term at high rates. (Reporting by Anurag Kotoky in Bangalore)