Quite in sync with mutual fund products like equity-linked savings scheme (ELSS), banks have advocated for lowering of fixed deposit (FD) tenure to three years to avail tax benefits, as part of their budget wishlist.
As of now, the tax break is available on five-year tax saving FD schemes and an individual can claim income tax rebate by investing in the abovementioned scheme under Section 80C of the Income Tax Act 1961. Section 80C is a wide bracket with a ceiling of Rs 1.50 lakh.
“As compared to other financial products (such as ELSS) available in the market, the tax-saver fixed deposit (FD) has become less attractive and if the lock-in period is reduced, this would make the product more attractive and provide more funds to the banks,” Indian Banks’ Association (IBA) said in a pre-budget proposal, which it has submitted to the government.
The lock-in period should be reduced to three years from the existing five years, the banks’ body said in its proposal.
Banks have also sought special rebates or additional depreciation for expenditure made on financial inclusion activities and promoting digital banking, among other activities.
IBA further said banks do a lot of activities for promoting the weaker sector, promoting digital banking and for implementing various schemes of the government under financial inclusion.
“By making expenditure of IT, banks give benefits to masses i.e. ease of doing business, digital banking, etc. Therefore, some special incentives in the form of the special tax rebate or deduction or additional depreciation (say 125 per cent) over and above the actual capital expenditure made on such activities may be provided,” it said.
The apex body of financial institutions also wants a special dispute resolution mechanism for faster disposal of cases related to taxation.
Banks’ appeals involve substantial amounts but these are treated on a parity with appeals involving small amounts, it said.
It added that huge amounts are involved entailing loss of interest to either party, both of whom are largely two arms of the government.