Budget 2025: Relief for the Middle Class Anticipated

Tax Exemption on FDs Under Consideration

Currently, interest earned on FDs is taxable. However, banks have been urging the government to remove or reduce the tax burden on FD interest. They argue that such a move would encourage people to save more in banks, boosting overall deposits. This step could address the issue of declining savings and the shortage of funds faced by banks for lending.

Demand for Tax Incentives on FDs

If this announcement is made in the upcoming budget, it would greatly benefit individuals who rely on interest income from FDs to meet their financial needs. Reports suggest that during pre-budget meetings with financial institutions, especially banks, there was a strong push for tax incentives on FDs to promote savings.

Lower Taxes on Investments in the Share Market

In the same pre-budget meeting, Edelweiss Mutual Fund’s MD and CEO, Radhika Gupta, emphasized enhancing efficiency and inclusivity in capital markets. She proposed incentives for long-term savings in bonds and equity shares. Banks also suggested that taxes on bank deposits should be reduced, similar to the lower tax rates applicable to investments in the stock market.

How This Could Benefit Investors

For instance, if an individual has an FD of ₹10 lakhs earning 8% annual interest, the total interest over five years would amount to ₹4 lakhs. Under the current rules, if the person falls under the 30% income tax bracket, they would need to pay tax on ₹3.6 lakhs (after an exemption of ₹40,000), amounting to ₹1.08 lakhs.

However, if the tax rate applied is equivalent to the Long-Term Capital Gains (LTCG) tax on stock market investments (12.5%), the tax liability would reduce to ₹45,000, resulting in a savings of approximately ₹63,000.

This change could make FDs a more attractive savings option, providing much-needed relief to middle-class taxpayers.