As part of their budget wishlist, banks have advocated lowering the tax-free fixed deposit (FD) tenure to three years in line with mutual fund products like equity-linked savings schemes (ELSS).
Currently, the tax break is available on five-year tax saving FD schemes. Individuals can claim income tax rebate under Section 80C of the Income Tax Act, 1961. Section 80C is a wide bracket with a limit of Rs 1.50 lakh.
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Indian Banks’ Association (IBA) submitted its pre-budget proposal to the government which said the tax-saving fixed deposit (FD) has lost its attractiveness because of other financial products available in the market such as ELSS but if the lock-in period is reduced, this would make the product more attractive and provide more funds to banks.
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The banks’ body said the lock-in period should be reduced to three years from the existing five years.
Banks have also demanded special rebates or additional depreciation for expenditure made on financial inclusion activities and for promoting digital banking.
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The proposal also said that banks perform activities for uplift of the poor, promoting digital banking, and implementing various government schemes for financial inclusion.
The IBA statement said, “By making expenditure on IT, banks give benefits to the masses, i.e. ease of doing business, digital banking, etc. Therefore, some special incentives in the form of a special tax rebate or deduction or additional depreciation (say 125%) over and above the actual capital expenditure made on such activities may be provided”.
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The body also demanded a special dispute resolution mechanism for faster disposal of taxation cases. Bank appeals involve considerable amounts but these are treated equally as appeals involving small amounts. Huge amounts are involved causing loss of interest to either party, both of whom are largely two arms of the government, it added.
Finance Minister Nirmala Sitharaman will present the Union Budget 2022 in Parliament on February 1 at 11 am.