DELHI: Chairman of State Bank of India (SBI), Arundhati Bhattacharya, has demanded relaxation in taxes to incentivize the domestic savings to strengthen the domestic demand.
“The savings and investment climate of the country will improve (post Budget). The limit for tax-free bonds may be enhanced so that more investors can participate. There will be reforms in infrastructure, power and road sectors so that investments can flow into the sectors after which banks can see quality demand for credit,” he added.
Lakhs of depositors in the country will have reason to cheer if the government pays heed to banks’ demand of hiking the threshold on tax deduction at source (TDS) on interest earned on deposits from the present Rs 10,000 to Rs 25,000. Surely, it will also give a big boost to banks’ efforts to mop up deposits.
At present, bank depositors have to pay TDS if they earn an interest of Rs 10,000 and above on their deposits. “The limit of Rs 10,000 was fixed a long time and that it needs to be hiked to a higher limit. Ideally, it needs to be linked to inflation,” says a senior banker.
Banks pay deposit insurance premium to Deposit Insurance Corporation (DIC), which protects all depositors money up to Rs 1 lakh of all commercial banks, both public and private. Banks pay a service tax of 12.36% on the deposit insurance premium. Bankers say it is unfair to tax them on the premium they fork out for protection of depositors.
Vijayalakshmi Iyer, chairman and managing director, Bank of India, told dna, “The savings and investment climate of the country will improve (post Budget). The limit for tax-free bonds may be enhanced so that more investors can participate. There will be reforms in infrastructure, power and road sectors so that investments can flow into the sectors after which banks can see quality demand for credit. There will be an improvement in the investment climate so that foreign institutional and foreign direct investments can flow into the country.”
The provisions or the capital that banks keep aside for bad loans are also taxed under income-tax. Bankers have requested that provisions which are made according to the RBI prescription to be kept outside the ambit of income tax.
They argue it is idle money which is kept aside as a buffer to comply with the regulatory stipulations, and banks do not earn any money on it.
A banker said, “Any provisions over and above the regulatory provisions can be taxed. Or else, banks will make high provisions and enjoy tax benefits but on regulatory mandated there should be tax exemptions.”
