SBI Calls for Tax Reforms to Boost Bank Deposits in India
The State Bank of India (SBI) has raised concerns over the recent decline in bank deposits and has called for tax reforms to address this issue. According to SBI’s latest report, tax reforms for deposits can enhance the stability and resilience of the banking system.
Reasons for Decline in Deposits
SBI attributes the fall in deposits to the varied rates of return offered by different investment options for similar time frames and different tax rates on returns on deposits. The report states that the tax treatment of bank and non-bank channels is non-uniform, which affects the returns on bank deposits.
Examples of Different Returns
The report provides several examples to illustrate the impact of different tax treatments:
| Investment Type | Principal Amount | Return Rate | Gross Return | Net Return After Taxes |
|---|---|---|---|---|
| Savings Bank Account | Rs 10 lac | 3% | Rs 30,000 | Rs 16,000 |
| Term Deposit (up to 1 year) | Rs 10 lac | 6.25% | Rs 62,500 | Rs 50,000 |
| Term Deposit (more than 1 year) | Rs 10 lac | 7.25% | Rs 72,500 | Rs 58,000 |
| Equity and Mutual Funds (2% dividend) | Rs 10 lac | 2% | Rs 20,000 | Rs 16,000 |
| Short-term Equity and Mutual Funds (less than 1 year) | Rs 10 lac | 11% | Rs 1,10,000 | Rs 88,000 |
| Long-term Equity and Mutual Funds (more than 1 year) | Rs 10 lac | 15% | Rs 1,50,000 | Rs 1,43,750 |
These variations in returns across different deposits and investment options highlight the complexity and thus investors are choosing the higher return options over the bank deposits which in turn poses a threat to the deposit growth in the banking sector.
Doubts Revealed
SBI -: SBI stands for State Bank of India. It is the largest bank in India and is owned by the government.
Tax Reforms -: Tax reforms are changes made to the tax system to make it better. These changes can help people and businesses pay taxes more fairly.
Bank Deposits -: Bank deposits are the money people keep in their bank accounts. This money can be saved or used for transactions.
Investment Options -: Investment options are different ways people can use their money to earn more money. Examples include stocks, bonds, and bank deposits.
Returns -: Returns are the money you earn from an investment. For example, if you put money in a bank, the interest you get is your return.
Uniform Tax Treatment -: Uniform tax treatment means that all types of investments are taxed in the same way. This helps make sure that no investment is unfairly better than others.