The Budget proposals such as income tax relief and an increase in tax deduction at source (TDS) threshold on fixed deposits (FDs) may lead to an additional deposit mobilisation of around Rs 45,000 crore by the banks in 2025-26, boosting their liquidity for enhancing credit flows, financial services secretary M Nagaraju said on Monday.
In the Budget for 2025-26, the government has proposed an increase in the TDS threshold on interest earned from fixed deposits for non-senior citizens from the current Rs 40,000 to Rs 50,000 per financial year. The TDS threshold for FD interest income earned by senior citizens will be doubled from Rs 50,000 to Rs 1 lakh. The income tax exemption limit has been increased to Rs 12 lakh from Rs 7 lakh in the new tax regime, which the government said would leave around Rs 1 lakh crore cash in the hands of taxpayers in a year.
Giving an analysis of the impact of the tax proposals on bank deposits, Nagaraju said around `20,000 crore could return to banks due to the increase in the tax exemption limit, at least Rs15,000 crore in fresh deposits from senior citizens due to the doubling of TDS threshold and Rs 7,000 crore from non-senior citizens.
“These measures, as per an assessment, suggest that about Rs 40,000-45,000 crore will flow into banks as deposits. Additional deposits will increase the banking system’s liquidity, reducing dependence on high-cost borrowing,” Nagaraju said.
Senior citizens hold about Rs 34 lakh crore in bank deposits, and since TDS directly influences deposit behaviour, this measure is expected to push deposits further, Nagaraju said. Total bank deposits by senior citizens have increased 150% from Rs 13.7 lakh crore in 2018 to Rs 34.2 lakh crore in 2023. The average deposit per such account has also increased from Rs 3.34 lakh to Rs 4.63 lakh during the period.
Talking about the Budget proposal to set up a forum for regulatory coordination and development of pension products, Nagaraju said the forum — to be headed by the Pension Fund Regulatory and Development Authority (PFRDA) — would play a coordination role in developing common minimum supervisory reporting formats, enhance consumer protection standards and undertake comprehensive market development initiatives.