Banks propose reduction of tax-free FD tenure to 3 years

Banks have made a case for lowering fixed deposit (FD) tenure to three years for availing tax benefits, in line with mutual fund products like equity-linked savings scheme (ELSS). Currently, the tax break is available on five-year tax-saving FD schemes. One can claim an income tax deduction by investing money in a five-year FD scheme under Section 80C of the Income Tax Act, 1961. Section 80C is a wide bracket with a ceiling of Rs 1.50 lakh.

"As compared to other financial products (such as ELSS) available in the market, the tax-saver fixed deposit (FD) has become less attractive and if the lock-in period is reduced, this would make the product more attractive and provide more funds to the banks," IBA said in a pre-Budget proposal submitted to the government. The lock-in period should be reduced to three years from the existing five years, the Indian Banks' Association (IBA) said in its proposal.

Banks have also sought special rebates or additional depreciation for expenditure made on financial inclusion activities and promoting digital banking, among other activities. IBA further said banks do a lot of activities for promoting the weaker sector, promoting digital banking and for implementing various schemes of the government under financial inclusion.