Ahead of the Budget for 2025-26, the financial sector and capital market representatives on Thursday sought a lowering of tax on interest income from fixed deposits to align with capital gains tax on equities, a dedicated refinancing window for non-banking finance companies (NBFCs) and incentives for long-term savings.
To support deposit mobilisation by banks amid the flight of funds from banks to the capital market, banks suggested finance minister Nirmala Sitharaman to treat income from fixed deposits at par with capital gains tax on equities. Currently, FD income is taxed as per the applicable income tax slab rates, with the marginal rate being 30% excluding cess and surcharge, sources said. However, short-term capital gains tax rate for listed equity shares held for less than 12 months stands at 20% while the long-term rate is 12.5% for holding above 12 months.
After the Reserve Bank of India increased risk weightage on bank lending to NBFCs, large NBFCs are now borrowing mostly from overseas while a large number of small and mid-sized NBFCs are now borrowing from large NBFCs, which is increasing their costs, said FIDC Director Raman Aggarwal. “So, there is a very strong case for direct refinance window provided to NBFCs. A specific fund can be dedicated for refinancing NBFC loans to MSMEs, small borrowers and environment-friendly assets like electric vehicles,” Aggarwal said. Nabard or SIDBI could be made administrator of the refinancing window to NBFCs.
Edelweiss Mutual Fund MD & CEO Radhika Gupta said suggestions were also given regarding improving efficiency of capital markets and increasing capital market inclusion. Recommendation regarding incentivisation towards long-term saving, both debt and equity, were also made, she added.
To aid loan recovery by NBFCs, Aggarwal said the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act needs some tweaking. Currently, he said, the limit under SARFAESI Act is Rs 20 lakh for admission of cases for recovery which can be reduced to Rs 1 lakh so that smaller NBFC players can be covered under this, he added. He also said that the government can consider removing tax-deducted at source (TDS) on non-individual borrowers from NBFCs as there is no extra revenue generated from this provision. “There is no benefit to the borrower or to the lender. It is causing an operational nightmare,” Aggarwal said.
NBFCs are the only class of financial institutions which are not exempt from the TDS provision.
Sitharaman on Thursday chaired the seventh pre-budget consultation with stakeholders from the financial sector and capital markets. The meeting was attended by NSE CEO Ashish Kumar Chauhan, Gaja Capital co-founder Gopal Jain, HSBC Bank India CEO Hitendra Dave, Bank of America Head of India and ASEAN Economic Research Rahul Bajoria, Bandhan Bank CEO Partha Pratim Sengupta, Finance Industry Development Council (FIDC) Director Raman Aggarwal, HDFC Life Insurance CFO Niraj Shah, Edlewis MF CEO Radhika Gupta, Purnartha Investment Advisers chairman Rahul Rathi, HDFC pension management company’s CEO Sriram Iyer and Devra Research deputy ED Deepti George.