Bank deposits for more than 3 years will be Tax Free

BANK DEPOSITS FOR MORE THAN 3 YEARS WILL BE TAX FREE

According to Industrial Sources, in the pre-budget meeting the opinion has been built that tax benefits are to be given to low-maturity fixed deposits, by which bank deposits can maintain equilibrium with mutual funds and tax free bonds.

Happy news for Banks; their products can now compete with mutual funds and tax free bonds. A major share of financial savings were getting out of bank’s hands and reaching them. The government can make tax free, the deposits for above 3 years. Apart from these, the banking industry is lobbying with the government to provide tax slabs to companies, as in the case of individuals.

According to Industrial sources, government can consider these proposals and permit a tax rebate on fixed deposits for a period of three years. Sources present in the meeting have stated that, in the Pre-budget meeting the government has developed an opinion to provide tax benefits to low-maturity fixed deposits. Along with the finance minister Arun Jaitley, bank executives and Finance Institution Head have recommended that more deposits can be obtained with smaller lock-in periods.

By this, people will leave the mutual deposits with a 3 year lock-in period and migrate towards this. In most of the Mutual Fund schemes, according to the Income Tax Act, section 80C, there is a tax rebate; but these terms are not likely to those of Public Provident funds with a maturity period of 15 years. The Lock-in period for Equity Linked savings scheme is 3 years, and the Lock-in period for national saving certificates is 6 years.

“This facility will provide the people flexibility with regard to Lock-in. With a low lock-in period, money can be withdrawn within a period of 3 years. “

As of now, only fixed deposits with a Lock-in period of 5 years are eligible for tax rebates. According to the present system, in some instruments tax rebate can be claimed for investments upto 1.5 Lacs. Among these, Post office schemes, Public Provident Fund, Bank deposit, Life Insurance and Housing Loan require Principal payment. According to Ladder 7 Financial Advertising Firm’s founder Mr. Suresh Sadagopan, ‘This will give flexibility to the people with regard to Lock-in periods. On having a smaller Lock-in, money can be withdrawn after a period of three years.

This will bring the fixed deposits of banks in completion with the ELSS.’ In India the ratio (In percentage) of Financial Savings against Gross domestic savings was 7.1 percent in the financial year 2012-13. In the previous year this ratio was at 7.2 percent. In the meantime, it is significant that the Gross Domestic Savings has come down from 31.3 percent to 30.1 percent.

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