Ahead of the Union Budget 2026, State Bank of India (SBI) has urged the central government to announce wide-ranging reforms in taxation, insurance and pension sectors to boost household financial savings, ease compliance burdens and strengthen social security coverage.
In a recent report, SBI highlighted a decline in bank deposits as a share of household financial savings, which fell from 38.7 per cent in FY24 to 35.2 per cent in FY25. To reverse this trend and encourage savings through the formal banking system, the lender recommended tax relief measures for depositors.
SBI suggested that the tax treatment of interest income on bank deposits should be brought at par with long-term and short-term capital gains (LTCG and STCG). It said such parity would make bank deposits more attractive compared to other financial instruments.
"To boost financial savings, tax treatment for interest on deposits should be at par with LTCG and STCG," the report stated.
The bank also proposed reducing the lock-in period for tax-saving fixed deposits to three years, aligning it with Equity Linked Savings Schemes (ELSS) under mutual funds, to improve deposit mobilisation. Additionally, SBI recommended the removal of TDS on savings bank deposit interest or an increase in the threshold to provide relief to small savers.
GST reforms for banks
On the indirect tax front, SBI proposed amendments in GST provisions related to Input Service Distributor (ISD) to bring greater clarity and reduce litigation. The report suggested replacing the words "for or on behalf of distinct persons" with "for the benefit of distinct persons" in relevant sections of the GST Act, 2017.
The report also recommended deleting certain provisions and adding an explanation to Section 20(3) to allow acceptance of ISD distributed by banks without valuation disputes.
Highlighting operational difficulties, SBI pointed out issues faced by banks in complying with GST TDS provisions on interchange fees routed through settlement agencies such as NPCI, Visa and MasterCard. As these transactions are settled in real time and invoice details arrive later, banks are often required to pay GST TDS and subsequently seek refunds. SBI suggested that GST TDS should not apply to banking services.
Insurance penetration a concern
The report also raised concerns over declining insurance penetration in India. Citing IRDAI data, SBI said overall insurance penetration fell to 3.7 per cent in FY25, down from 4 per cent in FY23 and 4.2 per cent in FY22. Life insurance penetration declined to 2.7 per cent, while non-life insurance remained stagnant at 1 per cent.
SBI warned that the fall in life insurance penetration poses a challenge to IRDAI’s goal of "Insurance for All by 2047". It also noted that around 69 per cent of complaints in FY25 were related to claims, underlining the urgent need for reforms, particularly in the health insurance sector.
Call for pension reforms
On pensions, SBI emphasised the need for a well-structured pension system with a minimum pension guarantee to ensure long-term financial security for citizens.
The bank said that if addressed in the Union Budget 2026, these measures could significantly strengthen household financial resilience and support long-term economic stability.
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