Ahead of Union Budget 2024, a SBI Research report has suggested the central Government to bring taxation of Fixed Deposit on par with equity stocks and mutual funds in the upcoming Budget.

Currently, Equity/MF holdings stipulate are allowed Short Term Capital Gains tax at a flat rate of 15% while the Long-Term Capital Gains are taxed at a moderate 10%, with exemption allowed till income of LTCG up to one lakh during a given FY.

Also, the setting-off of loss against profits and carrying over the loss up to next eight years are also allowed.

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SBI Research says the above features make equity investments more lucrative than bank FDs. It has proposed the Government to tweak tax on deposit interest and announce flat tax treatment, just like equity, to boost savings rate.

“In line with MF/equity markets, we propose that the Government should tweak the ‘tax on deposits interest” and make flat tax treatment across maturity ladder,” SBI Research said in its prelude to Budget 2024.

It further said that household net financial savings has declined to 5.3% of GDP in FY23 and is expected to be 5.4% in FY24. “If we make deposits rate attractive in line with MFs, then this could push up household financial savings and CASA.”

Further, taxation of FD inmterest income at a flat report may also unleash an “additional spending and thereby additional GST revenue to the Government” as more amount will be in the hand of depositors.

SBI Rsearch believes an increase in bank deposits will bring not only stability in core deposit base and financial system but also financial stability in household savings as “banking system is better regulated and having a superior trust as compared to other alternatives with high volatility/risk”, it said.

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“Deposits are taxed on accrual basis and other asset classes only on redemption and there is also a need to remove this treatment,” the report added.

Note: The above is just an expectation. Finance Minister Nirmala Sitharaman will present the actual Full Budget for 2024-25 on 23rd July 2024 in the Lok Sabha.

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