Union Budget 2026 Approaches with Key Sectoral Demands
As the Union Budget 2026 draws near, various economic sectors are articulating their expectations and pressing demands from the government. A comprehensive report released by the State Bank of India positions this upcoming Budget as a pivotal opportunity for the central government to enact substantial reforms. These reforms are targeted at three critical areas: taxation, insurance, and pension schemes, with the overarching goals of boosting household savings, simplifying compliance procedures, and expanding social security coverage across the nation.
Addressing the Decline in Household Financial Savings
The SBI report sheds light on a concerning trend: the share of bank deposits within household financial savings has been steadily declining. Data indicates a drop from 38.7% in the fiscal year 2024 to 35.2% in FY25. To counteract this trend and encourage greater public participation in the formal banking system, SBI has put forward a series of tax relief recommendations designed to make saving more attractive.
Key Tax Proposals to Stimulate Bank Deposits
Aligning Interest Income with Capital Gains: A central proposal is to harmonize the tax treatment of interest earned on bank deposits with that of long-term and short-term capital gains (LTCG and STCG). The report explicitly states, "To boost financial savings: (a) tax treatment for interest on deposits should be at par with LTCG and STCG."
Revising Fixed Deposit Lock-in Periods: SBI suggests reducing the lock-in period for tax-saving fixed deposits to three years. This change would bring them in line with Equity Linked Savings Schemes (ELSS), aiming to improve the mobilization of deposits by offering more flexibility to savers.
Easing the TDS Burden on Small Savers: To alleviate the compliance burden on individual depositors, the bank proposes that the forthcoming Budget should either eliminate Tax Deducted at Source (TDS) on savings bank deposit interest entirely or significantly raise the existing threshold. This measure is intended to provide immediate relief to small and medium savers.
GST Reforms for Clarity and Reduced Litigation
On the indirect taxation front, the SBI report calls for specific amendments to the Goods and Services Tax (GST) framework, particularly concerning Input Service Distributors (ISD). The objective is to inject greater clarity into the provisions and limit potential legal disputes.
The recommendations include replacing the phrase "for or on behalf of distinct persons" with "for the benefit of distinct persons" within the GST Act of 2017. Additionally, the report advocates for the deletion of certain ambiguous provisions and the insertion of an explanatory note to Section 20(3). These changes would facilitate banks in accepting ISD distributions without encountering disputes over valuation, thereby streamlining operations.
Addressing Practical GST TDS Challenges: The report also highlights operational difficulties faced by banks in applying GST TDS to specific payments, such as interchange fees processed through settlement agencies like NPCI, Visa, and MasterCard. Since these transactions are settled in real-time, banks are often compelled to pay GST TDS before receiving detailed invoices, leading to a cumbersome process of later claiming refunds. To resolve this inefficiency, SBI has suggested that GST TDS should not be applicable to banking services, simplifying the transactional landscape.
Reversing the Downtrend in Insurance Penetration
Turning to the insurance sector, the SBI report expresses significant concern over falling insurance penetration rates. According to data from the Insurance Regulatory and Development Authority of India (IRDAI), penetration declined to 3.7% in FY25, down from 4% in FY23 and 4.2% in FY22. This downward trajectory poses a challenge to IRDAI's ambitious "Insurance for All by 2047" initiative.
The report further notes that approximately 69% of all complaints registered in FY25 were related to claims, underscoring an urgent need for systemic reforms, particularly within the health insurance domain. Enhancing transparency, efficiency, and trust in the claims process is deemed critical for revitalizing public confidence and participation in insurance products.
Conclusion: A Budget for Long-Term Stability and Household Wellbeing
In its concluding remarks, the State Bank of India emphasizes that the implementation of these proposed measures in the Union Budget 2026 would serve a dual purpose. It would not only bolster long-term economic stability by strengthening the savings and investment ecosystem but also significantly enhance the financial security and overall wellbeing of households throughout India. The Budget, therefore, is viewed as a crucial instrument for catalyzing inclusive growth and securing a more resilient economic future.
