The State Bank of India (SBI) has recently raised concerns over the decline in bank deposits and has called for tax reforms to address the issue. According to the latest report by SBI, the varying rates of return offered by different investment options and the different tax rates on returns on deposits have contributed to the fall in deposits. The report suggests that tax reforms for deposits can enhance the stability and resilience of the banking system.
One of the key points highlighted in the report is the non-uniform tax treatment of bank and non-bank channels. The report states that bank deposits have a wider and denser pass-through effect across the populace, with sensitivity of deposits on tax as high as 7 per cent. This means that the tax treatment of different investment options can significantly impact the returns generated by investors.
For example, the report illustrates that a bank deposit of Rs 10 lakh in a Savings Bank (SB) account with an investment return of 3 per cent would generate Rs 30,000 in returns. However, after accounting for taxes and exemptions, the net return would only be Rs 16,000. This highlights the impact of tax rates on the overall returns generated from bank deposits.
Furthermore, the report points out that the net returns vary significantly depending on the type of investment instrument used. For instance, a term deposit of up to one year with a yield of 6.25 per cent would result in a net return of Rs 50,000 after taxes. On the other hand, a term deposit exceeding one year with an interest rate of 7.25 per cent would generate a net return of Rs 58,000 after taxes. This disparity in returns based on the duration of the investment highlights the need for uniform tax treatment across different investment options.
The report also highlights the variations in returns across different investment plans such as equity and mutual funds. Short-term investments of less than one year in equity and mutual funds offering an 11 per cent return generate Rs 1,10,000, with a net return of Rs 88,000 after taxes. On the other hand, long-term investments of more than one year with a 15 per cent return on Rs 10 lakh generate Rs 1,50,000 annually, with a net return of Rs 1,43,750 after taxes. This shows that the tax treatment of different investment options can significantly impact the returns generated by investors.
In conclusion, the SBI report highlights the need for tax reforms for deposits to address the decline in bank deposits. By ensuring uniform tax treatment across different investment options, the banking system can enhance its stability and resilience. Investors should carefully consider the tax implications of their investment decisions to maximize their returns and contribute to the growth of the banking sector.
