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SBI Urges Tax Relief on Bank Deposits, Insurance & Pension Reforms in Budget 2026

A State Bank of India report recommends the 2026 Union Budget introduce tax relief for bank depositors by aligning interest income treatment with capital gains and reducing tax-saving FD lock-in periods. It proposes key GST amendments, particularly for Input Service Distributor provisions and TDS on banking services, to reduce compliance burdens and litigation. The report highlights a concerning decline in insurance penetration and a high rate of claim-related complaints, calling for sectoral reforms. It also stresses the urgent need for a well-structured pension system with a minimum guarantee to improve long-term household financial security.

Key Points: SBI Proposes Tax Relief on Deposits, GST & Pension Reforms for Budget 2026

  • Tax relief for bank deposits to boost savings
  • Reduce FD lock-in to 3 years like ELSS
  • GST reforms for banks to cut litigation
  • Address declining insurance penetration
  • Push for structured pension system with guarantee
3 min read

Budget 2026 should announce tax relief on bank deposits, insurance and pension reforms: SBI

SBI report urges Budget 2026 to align deposit tax with capital gains, reform GST for banks, and boost insurance & pension security to increase savings.

Budget 2026 should announce tax relief on bank deposits, insurance and pension reforms: SBI
"To boost financial savings: (a) tax treatment for interest on deposits should be at par with LTCG and STCG - SBI Report"

New Delhi, January 27

The central government in the upcoming budget 2026 should announce reforms across taxation, insurance and pension sectors to boost household financial savings, reduce compliance challenges and improve social security coverage in the country, highlighted a report by State Bank of India

The report highlighted that bank deposits as a share of household financial savings have declined from 38.7 per cent in FY24 to 35.2 per cent in FY25. To encourage savings through the banking system, SBI suggested tax relief measures for depositors.

It said that the tax treatment for interest income on bank deposits should be brought at par with long-term and short-term capital gains (LTCG and STCG).

It stated, "To boost financial savings: (a) tax treatment for interest on deposits should be at par with LTCG and STCG"

The report also recommended that the lock-in period for tax-saving fixed deposits should be reduced to three years, making it equal to Equity Linked Savings Schemes (ELSS) of mutual funds, to improve deposit mobilisation.

In addition, SBI suggested removal of TDS on savings bank deposit interest or an increase in the threshold to provide relief to small savers.

On the indirect tax front, SBI proposed amendments in GST provisions related to Input Service Distributor (ISD) to bring greater clarity and reduce litigation.

The report suggested replacing the words "for or on behalf of distinct persons" with "for the benefit of distinct persons" in relevant sections of the GST Act, 2017.

It also recommended deletion of certain provisions to address interpretational issues and addition of an explanation to Section 20(3) to accept ISD distributed by banks without disputes over valuation.

The report further highlighted practical difficulties faced by banks in complying with GST TDS provisions on payments such as interchange fees routed through settlement agencies like NPCI, Visa and MasterCard.

As these transactions are settled on a real-time basis and invoice-wise details are received later, banks are required to pay GST TDS and then claim refunds. SBI suggested that GST TDS should not apply to banking services.

In the insurance sector, SBI noted that insurance penetration in India declined to 3.7 per cent in FY25 from 4 per cent in FY23 and 4.2 per cent in FY22, as per IRDAI data. Life insurance penetration fell to 2.7 per cent, while non-life insurance remained at 1 per cent.

The report said the decline in life insurance penetration is a concern for IRDAI's mission of "Insurance for All by 2047".

It also pointed out that around 69 per cent of complaints received in FY25 were related to claims, highlighting the need for reforms, particularly in the health insurance sector.

On pensions, SBI stressed the need for a well-structured pension system with a minimum pension guarantee.

According to SBI, these measures could strengthen financial security and support long-term economic stability if addressed in the Union Budget 2026.

- ANI

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Reader Comments

P
Priya S
Reducing the lock-in period for tax-saving FDs to 3 years is a brilliant idea. It will make them competitive with ELSS funds. For risk-averse middle-class families like mine, this would be a game-changer. More flexibility is always welcome! 👍
R
Rohit P
The insurance part is worrying. Penetration is falling and 69% complaints are about claims? That's a huge red flag. Reforms are desperately needed, especially in health insurance. People lose faith when claims get rejected for silly reasons.
S
Sarah B
While the suggestions are good, I hope the government also focuses on simplifying the overall tax structure. The GST compliance issues for banks sound like a nightmare. Reducing litigation and providing clarity should be a priority for any business-friendly budget.
M
Michael C
A minimum pension guarantee is crucial for social security. With an aging population, we cannot ignore the pension crisis. The NPS is good but not enough for everyone. The budget must address long-term financial security for our senior citizens.
K
Kavya N
Removing TDS on small savings bank interest or increasing the threshold would be a huge relief for retirees and students. Every rupee counts. SBI's report seems well-researched and practical. Let's see if North Block acts on it.
V
Vikram M
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