Industry

Senior citizens savings scheme needs full tax break, says SBI report

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‘Such a move will protect returns and have minimal impact on fiscal deficit’

Even as some banks are planning to link deposit rates with external benchmark, after linking retail floating lending rate to repo rate, a report by State Bank of India (SBI) suggested full tax breaks for senior citizens savings scheme to protect returns.

According to the report, authored by Soumya Kanti Ghosh, group chief economic adviser, SBI, such deposits formed 5.5% of private final consumption expenditure in FY19. When interest rates come down and if deposit rates are linked to repo rate similar to loan rates, this will impact private final consumption expenditure.

Under the Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit ₹15 lakh and the current interest rate is 8.6%. However, the interest on such SCSS is fully taxable.

“The March’18 outstanding under SCSS was ₹38,662 crore. It will be fair if such amount is given full tax rebate as the revenue foregone by the government could be only ₹3,092 crore, that will have the minimal 2 bps impact on government fiscal deficit,” the report pointed out.

Estimates suggest that there are about 41 million senior citizen term deposit accounts in the country with total deposits of ₹14 lakh crore or 7% of India’s GDP.

The average deposits size per account is about ₹3.3 lakh and interest income from such deposits formed 5.5% of private final consumption expenditure in FY19.

The report also said despite the cut in corporate tax, which will cost the exchequer ₹1.45 lakh crore, the fiscal deficit for the current financial year will be close to 3.5%.

The Centre has a target of 3.3% fiscal deficit for FY20.

“We still believe that fiscal deficit estimates for Centre in current fiscal should be still close to 3.5%.

“We are surprised that the market has missed out that only 58% of the ₹1.45 lakh crore fiscal bonanza will be revenue loss for the Centre/₹84,100 crore,” the report said.

It further added revised fiscal deficit estimate shows that government will be largely able to recoup ₹1.95 lakh crore of receipts shortfall through ₹1.53 lakh crore expenditure adjustment, subsidy rollover and extra dividends.

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Printable version | Jan 18, 2020 9:31:47 AM | https://www.thehindu.com/business/Industry/senior-citizens-savings-scheme-needs-full-tax-break-says-sbi-report/article29502366.ece

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