New Delhi, January 27: The central government should prioritize reforms in taxation, insurance, and pensions in the upcoming 2026 Union Budget to enhance household financial savings, ease compliance burdens, and improve social security coverage, according to a report from the State Bank of India (SBI).
The report revealed a notable decline in the share of bank deposits in household financial savings, dropping from 38.7% in FY24 to 35.2% in FY25. To stimulate savings through the banking sector, SBI proposed introducing tax relief measures for depositors.
It recommended aligning the tax treatment of interest income on bank deposits with that of long-term and short-term capital gains (LTCG and STCG). The report stated, "To encourage financial savings, the tax treatment of interest on deposits should be made comparable to LTCG and STCG."
Additionally, SBI suggested reducing the lock-in period for tax-saving fixed deposits to three years, bringing it in line with the Equity Linked Savings Schemes (ELSS) of mutual funds, to boost deposit mobilization. The bank also recommended the removal of Tax Deducted at Source (TDS) on savings bank deposit interest or increasing the threshold to provide relief for smaller savers.
On the indirect tax front, SBI proposed amendments to the Goods and Services Tax (GST) provisions related to the Input Service Distributor (ISD) to enhance clarity and reduce litigation. The report suggested replacing the phrase "for or on behalf of distinct persons" with "for the benefit of distinct persons" in relevant sections of the GST Act, 2017. It also advocated for the deletion of certain provisions to resolve interpretational issues and the addition of an explanation to Section 20(3) to allow for the acceptance of ISD distributed by banks without valuation disputes.
Furthermore, the report outlined the challenges banks face in complying with GST TDS provisions on payments such as interchange fees routed through settlement agencies like NPCI, Visa, and MasterCard. These transactions are settled in real-time, but invoice-wise details are received later, requiring banks to pay GST TDS upfront and claim refunds afterward. To address this, SBI suggested that GST TDS should not be applied to banking services.
In the insurance sector, SBI pointed out that insurance penetration in India has declined to 3.7% in FY25, down from 4% in FY23 and 4.2% in FY22, based on data from the Insurance Regulatory and Development Authority of India (IRDAI). Life insurance penetration dropped to 2.7%, while non-life insurance remained stagnant at 1%. The report expressed concern over the decline in life insurance penetration, which could undermine IRDAI's mission of "Insurance for All by 2047." It also noted that 69% of complaints received in FY25 were related to claims, emphasizing the need for reforms, particularly in the health insurance sector.
On pensions, SBI underscored the importance of a well-structured pension system that guarantees a minimum pension. The bank argued that addressing these issues in the Union Budget 2026 would significantly enhance financial security and contribute to long-term economic stability.
