Ahead of budget, SBI chief calls for taxation parity between bank deposits, equity bets

Mumbai (PTI): SBI chairman C S Setty on Saturday pitched for parity in tax treatment on returns made on equity investments and bank deposits.

A senior banking industry official also sought an extension in the tax holiday provision for income booked in the International Financial Services Centre (IFSC) beyond the current 10 years to boost activity in Gujarat's GIFT City.

In the comments that come a day ahead of the Union Budget, Setty said there is no disparity in taxation anywhere else in the world, and it is time for India also to align with other markets.

"I think there should be a level playing field for the financial savings instruments," he told reporters on the sidelines of a bank event here.

Maintaining that he does not know the provisions in the budget, Setty acknowledged that there will be fiscal constraints of such a move, but added that there is no "special treatment" for equities anywhere else.

He also said that the provisions incentivising equity investments through easier taxation were probably justified at some point of time, but added that given where we are today, where interest in the riskier equity markets is rising, no such treatment may be required.

At present, returns on deposits attract taxation as per a taxpayer's tax slab which may go up to 30 per cent, while returns made on listed equities have lower or concessional rates with a 12.5 per cent taxation on long-term capital gains of over Rs 1.25 lakh and 15-20 per cent on short-term capital gains.

Bankers have been asking for parity between the two financial instruments for some time now, and the same have been intensified especially after facing challenges on deposit accretions.

Many bankers say that savers have become smart and are only maintaining minimum balances in bank accounts by choosing to deploy excess money in equities for better returns. This reduces the resources for lending available with banks, and many times, they are forced to see excess investments in government bonds or also borrow from money markets to cater to credit demand.

Meanwhile, on the extension of tax holiday in IFSC incomes, the banking sector official said that activity in the GIFT City has not taken off as desired and added that the extension will help as it will prod lenders to book more business in India's only IFSC.

The banker added that entities enjoy a 50-year tax holiday on incomes from presence in Dubai International Financial Centre (DIFC), and underlined the need for Indian government to also look at extending the tax to make the Indian IFSC more active.