Ministry urged to restore FD tax break

Bankers have appealed to the finance ministry to restore tax sops on deposits that were removed in the annual budget of 2005-06 on concerns over the low rate of growth of bank deposits, compared with credit growth, K.Cherian Varghese, chairman and managing director, Union Bank of India, said.

The bankers have appealed to the government through Indian Banks' Association and expect finance minister P Chidambaram to take up the issue in the monsoon session of Parliament, Varghese said.

In the budget for 2005-06, Chidambaram had taken away the tax exemption of Rs 12,000 on interest earned from fixed deposits.

Bankers want the finance minister to either restore this tax exemption or allow deposits to be included under permissible investments of Rs 100,000 for tax benefit.

Under the current norms, interest earned on deposits cannot be listed under the investments specified under income tax exemption of Rs 100,000.

Also, in the annual monetary and credit policy announced in April, the Reserve Bank of India (RBI) harped on deposit mobilisation by banks.

"Banking system needs the deposits to support the accelerated growth of the economy," Varghese said. "If we don't have resources then how will we fund the credit growth of the economy."

Non-food credit grew by 26.5 per cent (net of conversion) in the last financial year over 18.4 per cent in the previous year, according to RBI data.

Also, the high incremental credit-deposit ratio at 88 per cent reflects the high demand of credit in the country.

"With credit growth taking place at such a fast pace, this is a national need," Varghese said.