Banks want lower FD lock-in

Banks are not happy with the tax rebate offered on fixed deposits of five years and above. They want finance minister to lower the bar to three years and above for tax benefits under Section 80C of the Income Tax Act.

At a post-Budget meet at the Indian Banks' Association (IBA) last week, chief financial officers of various commercial banks decided to petition the finance minister for the concession on the ground that lock-in period for tax savings investments in mutual funds and postal savings is three years, banking sources said.

Accounts with deposits of five years and above have been on a decline in the last few years against a rise in accounts with deposits of three years to less than five years maturity.

Commercial banks had a total of Rs 1,83,364 crore of deposits with maturity of three years to less than five years as on March 31, 2004, against Rs 1,21,629 crore a year ago. Total number of accounts in this maturity bracket rose to 33 lakh as on March 31, 2004, from 25.39 lakh a year earlier.

The amount of deposit with maturity of five years and above was Rs 77,048 crore at the end of March 2004, marginally up from Rs 74,004 crore a year earlier.

The number of accounts in this maturity bracket declined to 18.4 lakh as on March 31, 2005, from 19.72 lakh a year earlier.

IBA will now submit a memorandum to the finance minister seeking a review of the minimum period for depositors to avail of tax benefits on fixed deposits.

IBA will also appeal to the finance minister against the proposal to remove Section 10(23)(G) pertaining to exemption of interest and capital gain from tax in respect of investments in infrastructure companies.

The bankers feel the removal of tax benefit will lead to loans provided to infrastructure companies becoming more expensive.

They argue that the move to withdraw tax benefits for investment in infrastructure companies goes against the government's focus on the infrastructure sector.