The task seems to be cut out for the Congress-led UPA government as far as boosting the economy is concerned, what with various sectors and interests pushing and pulling in different directions.
The latest to jump into the fray are the bankers, who have come out with their charter of demands, which, if fulfilled, would greatly raise banks' status in the eye of the depositors as an avenue of investment.
Most important amongst the demands is the reduction of the tenure of long-term deposits from five years to three, and thereby bring such deposits on par with Equity Linked Saving Scheme (ELSS) of mutual funds.
The Union Budget, presented three years ago, had extended similar benefits to long-term bank depositors, but since the latter are locked-in for five years and ELSS has a lock-in period of three years, the banks failed to woo the investors into their fold. Hence the call for slashing the tenure of long-term deposits.
For those who do not know, ELSS operates like an equity fund and investors get tax benefits. And this is the exact reason why the bankers have put in such a demand that would allow depositors to withdraw their money after three years.
And if that was enough, banks also want the freedom to offer loans to depositors against such long-term deposits.
The banks are also demanding a doubling of tax concessions on such deposits from Rs 1 lakh to Rs 2 lakhs which the Indian Banks' Association (IBA), the premier bankers lobby, would help them to raise resources that can be lent to companies, reported Mint.
As part of their 20 point pre-budget memorandum, the IBA has also pitched for making interest income of overseas lenders on external commercial borrowings, tax free, as Indian banks end up carrying the tax burden because foreign lenders refuse to part with their interest income in the form of tax.
The banking body wants tax-free inter-bank transactions of purchase and sale of foreign currency as currently they attract 0.25 per cent tax. Foreign lenders, bankers maintain, inflate the rate of interest while giving loan to an Indian bank to take care of tax issues. Such borrowing from a foreign entity for industrial purposes however was tax-free earlier.
Even though the banking sector does not favor the withdrawal of 12.36 per cent services tax levied on retail transactions on purchase and sale of foreign currencies, they do not want to pay the 0.25 per cent tax on foreign transactions among banks. This is because the profit on such transactions is very low and sometimes even lower than the tax rate charged on such transactions.
Amongst other demands put forth in the memorandum, IBA has demanded the government to reinstate the rule allowing banks to claim full deduction on the interest earned on long-term lending to the infrastructure sector, age of a senior citizen be revised downwards to 60, amendment in the rules related to tax deducted at source since banks face “huge problems in collecting TDS certificates and face huge dis-allowance at the time of assessment for no fault of theirs”.