As Finance Minister Nirmala Sitharaman prepares for the Union Budget 2024 presentation, the government is actively considering a proposal to increase the tax-deductible limit on interest income from savings accounts to Rs 25,000. This proposal, suggested by banks in a recent meeting with finance ministry officials, aims to enhance tax benefits for savers ahead of the budget announcement.
Banks have been pushing for deposit incentives amid rising worries over the expanding credit-deposit ratio. According to a report of TOI, "It (the suggestion) is under review, and there could be some relief for banks, which have demanded incentives to shore up deposits," a government official was quoted.
Under the previous tax regime, interest income up to Rs 10,000 annually from savings accounts was exempt from taxes under Section 80TTA of the Income Tax Act. For senior citizens aged 60 and above, this exemption extended to Rs 50,000, encompassing interest income from fixed deposits under Section 80TTB. However, these benefits were eliminated under the new tax regime introduced in the 2020 budget.
"Both issues, including enhancement of the old limit and allowing interest income earned from savings accounts in scheduled commercial banks (SCBs) under existing regulations in the new regime, are being deliberated," said the person cited above, noting that banks had previously made a presentation on this matter, TOI reported.
According to the latest Financial Stability Report from the RBI, households are increasingly diversifying their financial savings, favoring non-banks and the capital market. The report noted a peak credit-deposit ratio of 78.8% in December 2023, which eased to 76.8% by March.