Banks want current tax benefits extended to three-year deposits

Banks have sought an extension of the current tax benefits on five-year deposits to three-year ones to attract medium-term liabilities and bring parity with concession for investment into mutual funds and bonds. In their wish list for the 2019-20 Budget, the banks voiced demands to enhance tax sops for amounts set for stressed assets.

 

Term deposits of five years or more with a scheduled bank are eligible for inclusion in gross qualifying amount for deduction under Section 80C of the Income Tax Act.  For other eligible investments, such as bonds and mutual funds, the lock-in period is three years, and to ensure parity, the period of term deposits for claiming deduction under Section 80C should also be reduced to three years, senior bank executives said.

 

General insurance firms have suggested income tax rebate to increase the scheme’s outreach, like health insurance premiums, where rebate was given under Section 80D.

The Life Insurance Council, in its memorandum,  said pension products offered by insurance firms should be given parity with National Pension Scheme. Also, there should be an additional deduction of Rs 50,000 for such products. It has also batted for exemption for partial withdrawal of 25 per cent.

 

Non-banking finance firms sought an exemption from the requirement to deduct tax at source (TDS) for interest payments. At present, banks and insurance firms enjoy such exemption. The tax is required to be deducted at the rate of 10 per cent from interest paid to NBFCs.  Finance Industry Development Council in its memorandum, said obligation for TDS creates severe cash flow constraints, since NBFCs operate on a thin margin on interest, which at times is even lesser than the TDS on the gross interest.

 

Financial and capital market representatives suggested a review of interest rates on government’s small savings schemes, review of banking NPAs, provisions through setting-up a committee, setting-up of Debt Exchange Traded Fund, domestic capability building in audit and credit rating, rationalisation of various taxes such as Security Transaction Tax in the capital market.