Banks have once again knocked on the doors of the Government to reduce the duration of the tax-saving term-deposit scheme to three years from five years.
They want this change so that the resources so raised not only support infrastructure lending, which has gained traction over the last one year or so, but also suitably address the duration mismatch between assets and liabilities.
Banks have not been able to make much headway in mobilising funds under the tax-saving term-deposit scheme. Given that they could miss out on higher returns should interest rates head north, savers perceive the five years lock-in as too long a duration to commit funds.
“The tax savings term-deposit scheme in the current form is not favoured by savers as funds get locked in for five years. As premature withdrawal of the deposit is not allowed, the saver will have to forego an opportunity to earn better returns in case interest rates go up. Further, loan/overdraft against these deposits is not available,” said Mr K. Unnikrishnan, Deputy Chief Executive, Indian Banks' Association.
Savers will be willing to park their money in the tax-saving term-deposit scheme if the duration is cut to three years, he added. Banks had made a similar representation to the Finance Ministry last year also.
Banks pay around 8.5 per cent interest on tax-saving term deposits.
According to the Bank Term Deposit Scheme, 2006, deduction is available on investments under Section 80C of the Income-Tax Act, 1961, on investments (minimum of Rs 100 and up to a maximum of Rs 1 lakh a year) in term deposits of five years' maturity in a scheduled bank.
Under Section 80C, premium towards life insurance and unit-linked insurance plans, subscription to public-provident fund, employee's contribution to provident fund, investment in National Savings Certificate and equity-linked savings scheme, and repayment of principal amount in a home loan qualify for deduction (up to a maximum of Rs 1 lakh a year) from a taxpayer's gross total income.
infra loans
Banks have sought reintroduction of Section 10(23)(G) whereby they could claim deduction for the interest earned on long-term lending to infrastructure projects.
Bankers are of the view that if Section 10(23)(G) benefit is given in the forthcoming Budget, then banks will be encouraged to step up credit exposure to infrastructure projects.
kram@thehindu.co.in