Bankers on Thursday pitched for changes in tax laws to incentivise fixed deposit savings in banks, suggested various steps for attracting funds for infrastructure development and sought an improvement in the country's bank credit to GDP (gross domestic product) ratio as it would lead to higher input, employment and taxes as well.

At a pre-budget meeting with Finance Minister Pranab Mukherjee here, chief executives of public and private sector banks pointed out that while country's savings rate was at a reasonable level of about 32 per cent, only a third of such savings reached banks and, therefore, there was a need for removal of handicaps which banks face in mobilising deposits.

Towards this end, a significant suggestion to promote savings was the removal of tax deducted at source (TDS), which is now levied on interest income accruing from bank deposits.

At present, TDS is applicable if income from earnings from interest is Rs.10,000 or more.

Treat as capital

Articulating the concept in his interaction with the media after the meeting State Bank of India (SBI) Chairman Pratip Chaudhuri said: “Bank deposit beyond three years should be treated as capital. We have asked for three years (fixed deposit tenure) ... Now, in bank deposit, if a depositor has given the PAN number, then in no way deposit interest can escape from the income-tax net. So, anybody who has furnished the PAN number, should not have to pay any TDS because that interest would any way be captured into income.”

Alongside, bankers also sought a tax break on earnings frm term deposits so as to provide a level playing field with mutual funds. “We have asked for a level-playing field with debt mutual fund. Level-playing field means that bank deposit interest for deposit of five years should be given the status of a capital. Because if you put money in a debt mutual fund which is also investing in debt instruments after one year, it becomes capital,” Mr. Chaudhuri said.

On the need to devise ways of raising the bank credit to GDP ratio which is now very low at 45 per cent, he said: “There is need to improve the ratio. If bank credit to GDP ratio goes up, it would lead to higher output, employment and taxes.

Another major demand by bankers was that at a time when banks were facing higher NPAs owing to distressed sectors such as power, aviation and textiles, the provisioning that is made for NPAs should be completely tax exempt. At present, it is only tax exempt up to 7.5 per cent.

During the discussions, bankers also suggested that there should be a separate taxation window for pension funds and long-term funds and stressed the need to support infrastructure funding. A demand was made to make banks eligible entities to issue tax free infrastructure bonds while seeking special incentives for investors to invest in such bonds. Raising the need for clarity and broadening of the definition of ‘infrastructure', bankers said it should be regarded as a ‘priority' and there should be an independent regulator for it.