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Banks and financial institutions today urged Finance Minister Arun Jaitley to increase the Rs 1 lakh standard deduction limit under Section 80C of the Income Tax Act to increase household savings.
In a pre-Budget meeting, banks also suggested doing away with a separate limit for tax free bonds and including it under 80C, while LIC asked for a separate deduction limit only for life insurance.
According to an executive present in the meeting, the finance minister, who was “more responsive” than his predecessors, asked his officials how much would be the revenue loss it the deduction limit was increased and how could it be bridged from other measures.
Jaitley was reportedly told that the revenue department loses Rs 31,000 crore every year on Rs 1 lakh deduction, and if the limit was increased to Rs 2 lakh the loss would increase to Rs 62,000, assuming all taxpayers availed the tax benefits.
“Every year the finance minister is a mere listener. It was different this year,” said an executive.
Banks also suggested diluting government stake in LIC by making it go public. LIC chief reportedly said the issue comes up every year and listing the insurer had its own pros and cons.
“Listing of LIC can be a huge gamechanger for the Indian financial system,” said Uday Kotak, Executive Vice Chairman & Managing Director, Kotak Mahindra Bank. He said this would give additional revenue to the government, while the Centre could continue to hold at least 51% in LIC.
The issue of rising bad loans of banks and their recovery was extensively discussed in the meeting. Banks asked for 100% tax deduction on provisions towards bad debt.
Naina Lal Kidwai, Group General Manager and Country Head, HSBC India said more flexibility was needed to enable banks recover assets.
The finance ministry said it was looking at setting up a National Asset Management Company (NAMC) to look at recovery of assets, particularly in infrastructure. As asset reconstruction companies are facing capital constraints in their efforts to recover loans, the banks will be stakeholders in NAMC.
Some banks asked the finance minister to give a statement in Budget how public sector banks would be recapitalised. They also sought clarity on government thinking with regard to dilution of stake in public sector banks below 51%, as recommended by PJ Nayak committee.
The meeting was attended by Reserve Bank of India Deputy Governor Urjit Patel, State Bank of India Chairman Arundhati Bhattacharya, and Punjab National Bank Chairman KR Kamath, among others.
