In a disappointment to banks, finance minister Arun Jaitley did not accept their long-pending demand for a possible reduction in the tenure of tax-saving fixed deposits.
Banks had demanded a sharp hike in the cut-off limit for deducting tax at source on interest earned on deposits among their suggestions to the finance ministry for incorporation in budget 2015-16.
According to banks, such exemptions would have made fixed deposits more attractive and on par with equity-linked savings schemes and mutual funds.
Banks had also pitched for the lock-in period on deposits that are eligible for tax savings under Section 80C of the I-T Act to be reduced to three years from five years.
Had the government considered the demand of banks to make fixed deposits for three years and more tax-free instead of the five-year lock-in period at present, it would have provided lenders with a level-playing field with mutual funds and tax-free bonds that had weaning away a large chunk of investors.
Bankers had pointed out to the finance ministry that five year lock-in is a discouragement for banks when they promote these fixed deposits against other instruments like mutual funds, which have a lock-in period of three years.
Banks had said that the terms of schemes eligible for tax rebate under Section 80C are not uniform; while public provident fund has a lock-in period of 15 years, it is six years in the case of national savings certificate and three years in equity linked savings schemes (ELSS).