Government Considers Increasing Tax-Deductible Amount on Savings Account Interest to ₹25,000

The government is considering a proposal to increase the tax-deductible amount on interest earned from savings accounts to ₹25,000, sources familiar with the matter revealed. This proposal, suggested by banks during a recent meeting with key finance ministry officials, aims to provide relief to banks and incentivize deposits.

Under the existing tax regimes, interest earned up to ₹10,000 annually from savings accounts is tax-exempt under Section 80TTA of the Income Tax Act. For senior citizens, this limit is ₹50,000, including interest income from fixed deposits under Section 80TTB. However, these benefits were removed under the new tax regime introduced in the 2020 budget.

Banks are advocating for these benefits to be available under both tax regimes to encourage deposits amid concerns over the widening credit-deposit ratio. The Reserve Bank of India’s latest Financial Stability Report highlighted the increasing gap in financial savings allocation, leading to a rise in the credit-deposit ratio.

In response to these concerns, the government is considering enhancing the old limit and allowing interest income from savings accounts in scheduled commercial banks under existing regulations in the new regime. This move aims to address the decline in CASA deposits, as seen in the recent report from HDFC Bank, the country’s largest private sector lender.

A final decision on the proposal is expected closer to the budget announcement, providing potential relief for banks and taxpayers alike. Stay tuned for more updates on this developing story.