The upcoming Budget 2015 could see the Narendra Modi government making fixed deposits of three years and above tax-free against the current five-year term, in a bid to bring term deposits on par with mutual funds and tax-free bonds, which have seen a large number of investors.
In a pre-budget meeting with Finance Minister Arun Jaitley, senior bank executives and heads of financial institutions recommended the introduction of corporate tax slabs, in the lines of individual taxation.
The banking industry reportedly strongly supports the idea of fixed deposits of lower maturity being considered for tax-free status.
In the recent past, mutual funds have been able to draw many customers, thanks to the three-year lock-in period, making the financial instruments more attractive to the common man.
However, banking officials want a level playing field, and fixed deposits allow the cost of funds to be brought down.
Tax rebates under Section 80C are inconsistent in their minimum lock-in periods, with investments in public provident funds account being locked-in for 15 years, while the national savings certificate has a six-year lock-in period, and three-years for equity linked savings scheme (ELSS.)
As a percentage of gross domestic spending, financial saving has slipped by 10 basis points to 1.7% in 2012-13, with gross domestic savings too witnessing a more significant 1.2% fall to 30.1%, for the same period, according to EconomicTimes.
Currently, investments up to ₹1.5 lakh in post office savings schemes, bank deposits, principal on home loan, public provident fund and life insurance are exempted from tax.
