Financial institutions, particularly banks, have recommended tax incentives for fixed deposits (FDs) as part of efforts to promote savings ahead of the Union Budget 2025. The suggestion was made during a meeting between Finance Minister Nirmala Sitharaman and representatives from the financial sector, held on Thursday. The meeting aimed to address the ongoing decline in savings and explore measures to boost financial inclusion and savings mobilisation.
Incentives for long-term savings
The proposal that emerged was stimulating long-term saving primarily through bonds and equity shares. Radhika Gupta Managing Director and Chief Executive Officer of Edelweiss Mutual Fund reiterated that the finance minister briefed on capital markets efficiency and made it more inclusive as part of several recommendations to enhance the capital markets ecosystem in the next budget.
The discussants at the Budget Consultation Meeting included top officials, such as the Finance Secretary, the Secretary of the Department of Investment and Public Asset Management (DIPAM), the Secretary of Economic Affairs, the Secretary of Financial Services, and the Chief Economic Advisor. The Union Budget for the financial year 2025-26 will be read out in Parliament on February 01, 2025.
Banks call for tax breaks on fixed deposits
In the meeting, bank representatives urged the government to consider linking fixed deposits with long-term capital gains tax to incentivise savings. At present, the interest earned from fixed deposits is subject to regular income tax, which discourages individuals from parking their savings in such instruments. This move, they argued, could boost both individual savings and the overall deposit base of banks.
The option of connecting fixed deposits with long-term capital gains tax could free FD investors from substantial taxation and attract them. This could make these instruments more attractive as compared to other savings forms. The banking sector has been facing challenges concerning the declining deposit base, and this attempt is to reverse this trend by encouraging more people to invest in FDs.
Non-banking financial companies (NBFCs) seek refinance options
Besides banks, the Non-Banking Financial Companies (NBFCs) also had their points on issues and recommendations heard. Raman Agrawal, Director of the Financial Industry Development Council (FIDC), made strong requests for refinance facilities for green finance and electric vehicles. He suggested that NBFCs should have some dedicated funds, much like how the National Housing Bank does for housing finance companies.
Also, he suggested amendments to the SARFAESI Act so that securitisation and restructuring of financial assets become easier, especially for small NBFCs. According to Agrawal, the present limit under the SARFAESI Act is set at Rs 20 lakh and has to be brought down so that benefits can be accessible to small NBFCs.
TDS exemption for non-personal borrowers
Additionally, there was a proposal to remove the TDS (Tax Deducted at Source) on non-personal borrowers, such as companies and organizations. According to Agrawal, this provision does not generate additional revenue and could be eliminated to ease the financial burden on businesses.
Key areas for budget 2025
The discussions of the pre-Budget meeting have highlighted tax incentives for savers, improved green financing support, and more operational ease for NBFCs. These issues have been posited in formulating a budget by Finance Minister Nirmala Sitharaman for 2025–26.
The proposals on supporting savings and financial inclusion will also be indicative of the government's understanding of the problems faced by financial institutions in the broader economy. "These policies will motivate savings and investments that drive economic growth and increase activity in key sectors such as housing, green energy, and capital markets.
As the countdown to Budget 2025 continues, the financial sector eagerly awaits the government’s response to these suggestions, hoping for policies that foster growth, savings, and a more inclusive financial ecosystem.
