India continues to remain the bright spot globally, supported by its strong macro fundamentals and the government should focus on adherence to fiscal prudence and continue the fiscal consolidation path, a new report has suggested.
Nominal GDP growth for FY26 is expected at 10.2 per cent, “assuming a real GDP growth of 6.2 to 6.4 per cent and inflation of 4 to 3.8 per cent,” according to the report by SBI Research ahead of the Union Budget 2025-26.
“So, the Nominal GDP would be Rs 357.2 lakh crore,” the report predicted.
The fiscal deficit as per cent of the GDP may come at 4.5 per cent in FY26 (Rs 15.9 lakh crore).
“However, we must also appreciate that in a world of uncertainties mostly for the external sector, there is no harm in the glide path being tinkered a bit to give growth a leg up,” the report argued.
Gross market borrowing (Rs 14.4 lakh crore) can be expected in FY26 due to an increase in redemptions, when part of the Covid-19 pandemic borrowings are due for repayment, resulting in a net borrowing of Rs 11.2 lakh crore (Rs 4.05 lakh crore redemption in FY26 and expected switch of Rs 75,000 to 100,000 crore).
The government has already conducted Rs 1.1 lakh crore buyback and Rs 1.46 lakh crore switches so far in FY25.
“Communication from policy-makers as also the regulators needs to be crystal clear, and front loaded in market participants expectations. Schemes like Just-In-Time (JIT) that may have an effect on systemic liquidity need careful recalibration, keeping in mind the first order, as also the second order impacts,” according to the report.
When it comes to GST, there is a need for second round of reforms in GST (GST 2.0) with the rationalisation of tax rates and inclusion of electricity tariff, then Aviation Turbine Fuel and finally petrol/diesel, the report said.
PRELUDE TO UNION BUDGET 2025-26
FY26 budget could be built on the edifice of: Social Security, Financial Stability, Health Care and Consumption …We envisage the pareto optimal solution of Rationalizing Direct taxes across various options with least revenue loss / Rs 50,000 crores / a meagre 0.14% of GDP and maximum
gains to consumer as following (a) Remove all exemptions and bring all under new tax regime, but retain and enhance the NPS limit from Rs 50,000 to Rs 1 lakh and enhance medical insurance exemption to Rs 50,000 from Rs 25,000 (b) Tax rates to be rationalised at 15% from 20% at Rs 10-15 lakhs income bucket (c) 15% tax on deposits and across all maturities and such tax treatment should be same like other asset classes, i.e. clubbing it in other income and taxing it at redemption and not accrual basis and increasing Savings Bank tax exemption limit to Rs 20,000..India INC should match up Government efforts and efficiency without much further ado Please see the last page for disclaimer
Issue # 29, FY25 24-January-2025
2
Executive Summary….1/3
❑ A progressive Tax regime, coupled with reforms in taxation system, has ensured that tax mop up has grown handsomely over time…
❑ We estimate GoI can ensure better tax compliance and bolster consumption through enhancing disposable income, by moving all and one
under the New Tax regime, at a nominal loss(es) by foregoing certain amount of tax collection as under cases 1, 2 and 3
- Assumptions: (i) All exemptions under old tax regime are removed (~Rs 4.5 lakh per person) – except Health and NPS of ~1.5 crore taxpayers (at present which
are tweaked upwards under two scenarios from Rs 25k to Rs 50 k and NPS from Rs 50,000 to Rs 75,000 and Rs 1 lakh (Refer slide 12 for detailed table and
break-ups) - Likely loss to GoI under different Tax Adjustments are envisaged
– Case-1: Peak rate reduced to 25% for income above 15L and all exemptions are removed but healthcare and NPS are retained at the same level of Rs
25k and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 1 and Rs 50k and Rs 1 lakh in scenario 2. The revenue losses of the Government
stands at Rs 74000 crores to Rs 1.08 lakh crores. Additionally, a flat 15% tax is imposed on bank deposits that is added to other income and delinked from highest income bucket, with an increase in limit to Rs 20,000 tax exemption for savings bank (SA) deposits
– Case-2: Peak rate retained at 30% for income above 15L. However, tax rates are reduced to 15% from Rs 10 lakhs-Rs 15 lakhs and all exemptions are
removed but healthcare and NPS are retained at the same level of Rs 25k and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 12 and Rs 50k
and Rs 1lakh in scenario 2. The revenue losses of the Government stands at Rs 16,000 crores to Rs 50,000 crores. Additionally, a flat 15% tax is imposed
on bank deposits that is added to other income and delinked from highest income bucket, with an increase in limit to Rs 20,000 tax exemption for SA
deposits . We propose this option for the Government and Consumers with the revenue loss at Rs 50,000 crores / 0.14% of GDP
– Case3: Peak rate cut to 25% for income above 15L Tax rates are reduced to 15% from Rs 10 lakhs-Rs 15 lakhs and all exemptions are removed but
healthcare and NPS are retained at the same level of Rs 25k and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 12 and Rs 50k and Rs 1lakh in
scenario 2. The revenue losses of the Government stands at Rs 85,000 crores to Rs 1.19 lakh crores . Additionally, a flat 15% tax is imposed on bank
deposits that is added to other income and delinked from highest income bucket, with an increase in limit to Rs 20,000 tax exemption for SA deposits
❑ We believe that sensitivity of consumption demand is more responsive to indirect taxes vis-à-vis direct taxes… this thus calls for
further rationalization of indirect tax structure to smoothen consumption activity in economy
❑ India Inc. should match the pace/intent of the GoI in terms of visualizing for the next 50 years, that has frontloaded building robust
infra across physical-technical-social space that have ensured traction amongst various income groups…with good profitability post
pandemic, and viable financing options through a mix of sources (a resilient, deep and vibrant capital markets in harmony with a
strong banking system that has got its mojo back) augurs well for the investments that harness India’s strategic pitching for
becoming the manufacturer of the new world order
3
Executive Summary….2/3
❑ Adherence to fiscal prudence is a sine qua non for the government while continuing the fiscal consolidation path. The Fiscal deficit as % of GDP may come at 4.5% in FY26 (Rs 15.9 lakh crore) that looks like the new normal in a world of uncertainties, offering flexibility in tinkering the glide path a little to romp up inclusive growth
❑ With smart usage of switch and buyback Gross market borrowing (Rs 14.4 lakh crore) can be expected in FY26 due to an increase in redemptions, when part of the COVID-19 pandemic borrowings are due for repayment, resulting in a net borrowing of Rs 11.2 lakh crore (Rs 4.05 lakh crore redemption in FY26 and expected switch of Rs ~75000 to 100000 crore)
❑ Direct taxes contribution to total tax revenue rose to ~58% in 2023-24, the highest in 14 years and in lockstep with trends
seen in DMs like the US. Personal income tax (PIT) collections (7%) are surging higher than corporate tax collections (4%) in 5 years since FY21
❑ Of late, there is a Tsunami of women centric schemes unleashed by multiple states offering direct benefit transfers (some badly guised as pure electoral realpolitik, we believe) that can bleed select states’ finances going forward as the wedge between revenue receipts and such expenditures may vault to 3-11% of the states revenue receipts…With income transfer to women likely to be promised competitively by states in future, even the Union may be tempted to follow suit.. It would be worth taking course to adopt a universal income transfer scheme (matching grant from center to states) towards substantially reducing several market disturbing subsidies
4
Executive Summary….3/3
❑ In line with MF/direct equity investments, we understand that the Government should consider lowering tax on accrued interest rate on deposits, in alignment with capital gains to give a level playing field between Bank deposits and capital markets
❑ The present dispensation for Equity/MF holdings stipulates taxing STCGs at a flat rate of 15% while the LTCGs are taxed at a moderate 10%, with exemption allowed till income of LTCG up to one lakh during a given FY…also, the setting-off of loss against
profits and carrying over the loss up to next eight years makes the opportunity cost of such alternate investments quite lucrative for
investors up the wealth ladder
❑ The threshold for tax exemptions on Savings deposit at Rs 10,000 may be reconsidered and raised to Rs 20,000- the revenue
foregone using Pareto Principle comes around ~Rs 1,531 crore (flat RoI at 4%), leading to multiple benefits viz. Stability in core
deposit base, financial stability, better visibility of system liquidity against growing digital payments and most important allowing banks
to pass on the benefits accruing through low-cost deposits to fund the humongous social commitments (FI 2.0) / sunrise sectors led
demand in continuum
❑ Term deposits, that have witnessed greater favor with savers with elevated rates attracting higher proportions, may witness a revenue
foregone figure of Rs 10,500 crore if current tax treatment across maturity ladder is to be replaced by a simple flat 15%rate across all
maturity. Combined revenue foregone including both saving deposits and terms deposit comes around ~Rs 12,000 crore
❑ The National Health Policy 2017 has set a target of increasing healthcare spending to 2.5% of GDP. However, a more aggressive
target of 5% could be required to address the growing needs of India’s ageing and expanding population… Allocate proceeds from
healthcare cess and a proposed higher GST slab on tobacco and sugar products can strengthen public health programme
5
Key issues in Fiscal
6
Fiscal Deficit may be budgeted ~4.5% of GDP in FY26
❑ India continues to remain the bright spot supported by its strong macro fundamentals
❑ Nominal GDP growth for FY26 is expected at 10.2%, assuming a real GDP growth of 6.2 to 6.4% and inflation of 4 to 3.8%.
So, the Nominal GDP would be Rs 357.2 Lakh crore
❑ The Government should focus on adherence to fiscal prudence and continue the fiscal consolidation path. The Fiscal deficit as
% of GDP may come at 4.5% in FY26 (Rs 15.9 lakh crore). However, we must also appreciate that in a world of uncertainties
mostly for the external sector, there is no harm the glide path being tinkered a bit to give growth a leg up
Rs lakh crore FY24 FY25 BE FY25 (P) FY26 (P)
FY26 (P) /
FY25 (P)
(% yoy)
Tax Revenue 23.3 25.8 25.8 29.0 12.3
Non-tax Revenue 4.0 5.5 5.4 4.2 -21.5
Recoveries of Loans 0.3 0.3 0.2 0.3 50.0
Other Receipts 0.3 0.5 0.4 0.6 50.0
Total Receipts 27.9 32.1 31.8 34.1 7.3
Total Expenditure 44.4 48.2 47.7 50.0 4.8
Fiscal deficit 16.5 16.1 16.0 15.9 -0.1
Fiscal Deficit (% of GDP) 5.6 4.9 4.9 4.5 –
GDP 295.4 326.4 324.1 357.2 10.2
Budget at a glance
Memo item:
Source: CGA, Budget documents, SBI Research
7
With lower fiscal deficit, Government net borrowing likely to reduce moderately to Rs 11.2 lakh crore
in FY26
❑ Gross market borrowing (~Rs 14.4 lakh crore) can be expected in
FY26 due to an increase in redemptions, when part of the COVID-19
pandemic borrowings are due for repayment, resulting in a net
borrowing of Rs 11.2 lakh crore (Rs 4.05 lakh crore redemption in
FY26 and expected switch of Rs ~75000 to 100000 crore)
❑ Government has already conducted Rs 1.1 lakh crore buyback and
Rs 1.46 lakh crore switches so far in FY 25. Communication from
policy makers as also the regulators needs to be crystal clear, and
front loaded in market participants expectations
❑ Schemes like JIT that may have an effect on systemic liquidity need
careful recalibration, keeping in mind the first order, as also the
second order impacts
FY 24 FY25 BE FY25 (P) FY26 (P)
Gross Borrowing 15.43 14.01 14.01 14.4
Repayments* 3.63 2.38 2.38 3.20
Net Borrowing 11.80 11.6 11.6 11.2
Gross Borrowing 10.1 10.0 10.4 10.9
Repayments 2.8 3.2 3.2 3.7
Net Borrowing 7.3 6.9 7.2 7.1
Gross Borrowing 25.5 24.1 24.4 25.2
Net Borrowing 19.1 18.5 18.8 18.3
Source: SBI Research,*FY25 Repayment is expected to adjust
with Rs 0.87 Lakh cr buyback amount and Rs 1.97 Lakh cr from
GST compensation fund, FY26 repayment is based on the
expectation of ~ RS 75000 crore switch of RBI holding securites.
Else the gross borrowing may go beyond Rs 15 Lakch crore
Centre
Market Borrowings (Rs lakh crore)
State
Central+ States
8
Direct taxes to total tax revenue stands at 58% in FY25
❑ The contribution of direct taxes to total tax revenue budgeted at 58% in 2024-25, the highest in 14 years. While, the
share of indirect taxes to total tax revenue may decline to 42.3 per cent
❑ Personal income tax (PIT) collections surging higher than corporate tax collections since FY21
❑ PIT share has been increased by 7%, while corporate tax share has increased by 4% in 5 years
9
Direct Benefit Transfer Schemes for women across states has now crossed Rs 1.5 trillion…
Scheme Description State Allocation
(Rs crores)
Revenue
receipts
% of
Revenue
Receipts
Gruha Lakshmi Provision of Rs.2000/- per month to the female head of
the family Karnataka 28,608 2,63,178 11%
Mukhyamantri Ladli Behna
Yojana
Provision of Rs 1250 to all eligible women to promote
self reliance
Madhya
Pradesh 18,984 2,63,344 7%
Mahtari Vandan Yojana To provide married women with annual assistance of Rs
12,000 Chattisgarh 3,000 1,25,900 2%
Namo Shri Scheme
Pregnant women belonging to specified categories
(such as SC, ST, and BPL) will be provided a one-time
financial assistance of Rs 12,000.
Gujarat 12,000 2,29,653 5%
Mukhya Mantri Mazhi
Ladki Bahin Yojana
Provision of Rs 1,500 per month to eligible women
aged between 21 and 60 years. Maharashtra 46,000 4,99,463 9%
Mukhyamantri Mahila
Samman Yojana
Rs 1,000 per month will be provided to every adult
woman excluding those paying income tax, covered
under existing pension schemes, and government
employees.
Delhi 2,000 64,142 3%
Lakshmir Bhandar Provision of a one-time grant of Rs. 1000 to women
from economically weaker sections of society. West Bengal 14,400 2,36,251 6%
Subhadra Yojana Provision of Rs 50000 over 5 years to all eligible women
aged 21-60yrs Odisha 10,000 2,11,000 4%
❑ In a bid to woo women voters in the elections, all the parties have announced state’s the women-centric
schemes, which give direct cash transfer ranging from Rs 1000-2000 per month. The total cost of 8 states
amounts Rs ~1.5 lakh crore, which varies 3-11% of the state’s revenue receipts.. There is a need to have a
holistic view on schemes
10
….However States’ fiscal position should be examined simultaneously
❑ Some states have the capacity to pay for such schemes, for instance Odisha has higher non-tax revenue thus no
borrowing
❑ However, at a broader level, the welfare expenditure should be looked at vis-à-vis their respective fiscal situation
and borrowing pattern
States FY14 FY24
FY25 Till
22 Jan 25
FY24 X
times as
FY14
Andhra Pradesh 0.28 0.69 0.63 2.5
Bihar 0.08 0.48 0.38 5.9
Chhattisgarh 0.03 0.32 0.07 9.6
Goa 0.01 0.03 0.01 2.1
Gujarat 0.22 0.31 0.19 1.4
Haryana 0.12 0.48 0.31 4.1
Jharkhand 0.05 0.01 0.00 0.2
Karnataka 0.16 0.81 0.55 5.2
Kerala 0.11 0.42 0.36 3.8
Madhya Pradesh 0.11 0.39 0.35 3.6
Maharashtra 0.24 1.10 0.81 4.6
Odisha 0.05 0.00 0.01 0.0
Punjab 0.10 0.42 0.35 4.3
Rajasthan 0.12 0.74 0.53 6.0
Tamil Nadu 0.23 1.13 0.84 4.8
Telangana – 0.50 0.44 –
Uttar Pradesh 0.19 0.98 0.26 5.0
Uttarakhand 0.03 0.06 0.04 1.9
West Bengal 0.26 0.70 0.43 2.7
All States and UTs 2.51 10.07 6.94 4.0
State wise Gross market borrowing (Rs Lakh Cr)
States FY14 FY24(RE) FY25(BE)
Change in
bps
(FY24/FY14)
Andhra Pradesh 0.0 -2.7 -2.1 -270
Bihar 1.9 -4.2 0.1 -610
Chhattisgarh -0.4 -3.1 0.2 -270
Goa -0.7 0.9 1.6 160
Gujarat 0.6 0.8 0.4 2 0
Haryana -1.0 -1.2 -1.5 -20
Jharkhand 1.6 1.5 3.7 -10
Karnataka 0.1 -0.6 -1.0 -70
Kerala -2.9 -2.1 -2.2 8 0
Madhya Pradesh 1.4 0.0 0.1 -140
Maharashtra -0.3 -0.5 -0.5 -20
Odisha 1.2 2.6 2.9 140
Punjab -2.1 -3.2 -2.9 -110
Rajasthan -0.2 -2.0 -1.4 -180
Tamil Nadu -0.2 -1.7 -1.6 -150
Telangana – 0.1 0.0 –
Uttar Pradesh 1.2 2.8 2.7 160
Uttarakhand 0.9 0.9 1.2 0
West Bengal -2.7 -1.7 -1.7 100
All States and UTs -0.1 -0.5 -0.2 -40
State wise Surplus (+)/Deficit (-) on Revenue Account (%
of GSDP)
11
Tax Related Suggestions
12
Tweaking the Income Tax Rate/Slab…… 1/2
❑ We estimate GoI can ensure better tax compliance and bolster consumption through enhancing disposable income, by moving all and one
under the New Tax regime, at a nominal loss(es) by foregoing certain amount of tax collection as under cases 1, 2 and 3- Assumptions: (i) All exemptions under old tax regime are removed (~Rs 4.5 lakh per person) – except Health and NPS of ~1.5 crore taxpayers (at present which
are tweaked upwards under two scenarios from Rs 25k to Rs 50 k and NPS from Rs 50,000 to Rs 75,000 and Rs 1 lakh (Refer slide 12 for detailed table and
break-ups) - Likely loss to GoI under different Tax Adjustments are envisaged
– Case-1: Peak rate reduced to 25% for income above 15L and all exemptions are removed but healthcare and NPS are retained at the same level of Rs 25k
and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 1 and Rs 50k and Rs 1 lakh in scenario 2. The revenue losses of the Government stands at
Rs 74,000 crores to Rs 1.08 lakh crores. Additionally, a flat 15% tax is imposed on bank deposits that is added to other income and delinked from highest
income bucket, with an increase in limit to Rs 20,000 tax exemption for SA deposits
– Case-2: Peak rate retained at 30% for income above 15L. However, tax rates are reduced to 15% from Rs 10 lakhs-Rs 15 lakhs and all exemptions are
removed but healthcare and NPS are retained at the same level of Rs 25k and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 12 and Rs 50k and
Rs 1lakh in scenario 2. The revenue losses of the Government stands at Rs 16,000 crores to Rs 50,000 crores. Additionally, a flat 15% tax is imposed on
bank deposits that is added to other income and delinked from highest income bucket, with an increase in limit to Rs 20,000 tax exemption for SA deposits .
We propose this option for the Government as also Public at large
– Case3: Peak rate cut to 25% for income above 15L Tax rates are reduced to 15% from Rs 10 lakhs-Rs 15 lakhs and all exemptions are removed but
healthcare and NPS are retained at the same level of Rs 25k and Rs 50 k and increased to Rs 50k and Rs 75 k in scenario 12 and Rs 50k and Rs 1lakh in
scenario 2. The revenue losses of the Government stands at Rs 85,000 crores to Rs 1.19 lakh crores . Additionally, a flat 15% tax is imposed on bank
deposits that is added to other income and delinked from highest income bucket, with an increase in limit to Rs 20,000 tax exemption for SA deposits
Out of all the scenarios estimated above, we are of the considered opinion that Case-2 optimizes the revenue foregone-incremental
output scenario the Best by strengthening the four quadrants of Social Security, Financial Stability, Consumption boost and
healthcare tweaking tax rates between the Rs 10-15 lakh bucket, removing the exemptions but bolstering the same on NPS (creating
a handsome corpus for sunset years / other eventualities) and healthcare among those who can afford (that may accentuate
government’s schemes like Ayushman Bharat), keeping optimal CASA deposits level in the banking system, eventually boosting
consumption and investments through higher ICOR (incremental capital output ratio)
13
Tweaking the Income Tax Rate/Slab…… 2/2
Simulations in Income Tax (All numbers in Rs lakh crores)
Gain to Government Loss to Government under different Tax
Adjustments
Revenue
foregone
Net Gain/Loss to Government
(Removing all exemptions with
some tweaks is common theme
across all 3 cases)
Exemptions Scenarios Health NPS
After removing all
exemptions (~Rs 4.5 lakh
per person) – except Health
and NPS of 1.5 crore
taxpayers
Case-1: Peak rate
reduced to 25% for
income above 15L
Case-2: Tax rates
reduced from 20%
to 15% in 12L-15L
income bucket ,
thus moving all
from Rs 10-15 lakhs
in 15% bucket only
Case3:
Case1 +
Case2
Flat 15% tax
on bank
deposits
and
increasing
SA
exemption
limit to Rs
20,0000
Case-1 Case-2 Case-3
Existing Exemptions 25K 50K 1.59
2.21 1.63 2.32 0.12
-0.74 -0.16 -0.85
Revised-Scenario 1 50K 75K 1.36 -0.97 -0.39 -1.08
Revised-Scenario 2 50K 100K 1.25 -1.08 -0.50 -1.19
Source: SBI Research
14
Revenue implications for changing savings deposit threshold from Rs 10,000 to 20,000
❑ The threshold for savings deposit at Rs 10,000 may
be reconsidered and raised to Rs 20,000
❑ Revenue foregone calculations under the Pareto
principle - (85-15) pre-change and (86-14) post change was
done for Amount - (99.5-0.5) pre-change and (99.6-0.4) post change for
no. of accounts
❑ The revenue foregone is around Rs ~Rs 1,531 crore
(RoI at 4%) using deposit base as of March 2024
❑ For this amount revenue neutrality can be achieved
without much trouble
❑ Benefits: Stability in core deposit base, financial
stability, better visibility of system liquidity with
growing digital payments
Nil Surge
scenario
Total saving deposits (Rs crore) 53,87,584
Amount admisible for tax (@15%) 8,08,138
No of accounts (Crores, @0.5%) 1.11
Deposit rate 4.0%
Total interest paid (Rs Crores) 32,326
Exempted amount @ Rs 10,000 11,059
Tax Base (Rs Crores) 21,267
Amount admisible for tax (@13.5%) 7,27,324
No of accounts (Crores, @0.35%) 0.774
Deposit rate 4.0%
Total interest paid 29,093
Exempted amount @ Rs 20,000 15,482
Tax Base 13,611
Change in tax base -7,656
Revenure foregone @ 20% -1,531.19
Assuming threshhold is raised to Rs 20,000
15
Revenue implications for changing savings deposit threshold from Rs 10,000 to 20,000 with surge
❑ The estimated surge in savings deposit on account of
change in tax rate is 4.01%
❑ The results are not much different from base line
case
❑ However, there should be impetus for the average
depositors to continue the pattern of demand and
time deposits allocation, helping banks to pass on the
benefits of low-cost deposits to meet commitment
towards social attributes / sunrise sectors led demand
in continuum
With Surge
scenario
Total saving deposits (Rs crore) 56,03,637
Amount admisible for tax (@15%) 8,40,546
No of accounts (Crores, @0.5%) 1.11
Deposit rate 4.0%
Total interest paid (Rs Crores) 33,622
Exempted amount @ Rs 10,000 11,059
Tax Base (Rs Crores) 22,563
Amount admisible for tax (@13.5%) 7,56,491
No of accounts (Crores, @0.35%) 0.774
Deposit rate 4.0%
Total interest paid 30,260
Exempted amount @ Rs 20,000 15,482
Tax Base 14,778
Change in tax base -7,786
Revenure foregone @ 20% -1,557.12
Assuming threshhold is raised to Rs 20,000
16
Tax implications of flat 15% tax rate across term deposit maturity
❑ All calculation taking March 2024 deposit and
rates as baseline (for individual depositors’
contribution only excluding other segments)
❑ Current tax treatment across maturity ladder to
be replaced by simple flat 15% rate across all
maturity
❑ As with savings account, surge in deposit
was estimated using 1.1 tax buoyancy,
reduction in tax rate by 25%, deposit GDP
elasticity of 0.85%
❑ Based on this the revenue foregone is Rs
10,408 crores
❑ Combined revenue foregone including both
saving deposits and terms deposit is Rs
11,965 crores
Upto 1 year*
1 year &
above but less
than 3 years
3 years &
above but less
than 5 years
5 years & above
Deposit Amount 4,35,310 44,24,209 4,94,528 6,38,181
Tenure 0.5 1 1 1
Rate of Intt. 6.25% 7.10% 7.00% 6.85%
Interest outgo 13,603 3,14,119 34,617 43,715
Tax base (@93%) 12,651 2,92,131 32,194 40,655
Current ax rate 20% 20% 20% 20%
Tax 2,530 58,426 6,439 8,131 75,526
Proposed tax rate 15.00% 15.00% 15.00% 15.00%
Deposit change
due to tax 4,51,079 49,44,496 5,52,684 7,13,231
Interest 28,192 3,51,059 38,688 48,856
Tax base (@93%) 26,219 3,26,485 35,980 45,436
Tax 3,932.85 48,972.76 5,396.96 6,815.46 65,118
Estimated Revenue foregone (With surge in deposit) -10,408
17
Required Separate Deductions in the New Tax Regime for Social Security
❑ According to IRDAI, insurance penetration in India witnessed a drop to 3.7%, as compared to 4% in FY23 and 4.2% in FY22.
Life insurance penetration declined to 2.8% while non-life insurance remained at 1%.
❑ So, the decline in penetration is mainly due to the decline in life insurance penetration, which has raised concern to the IRDAI’s
mission of ‘Insurance for all by 2047’
❑ We expect Government will focus on the followings to revive the insurance sector: - No GST/Tax on Term/Pure Life Insurance and health insurance premiums
- In line with NPS, a separate deduction for life/Health insurance in the new/Old tax Regime, say Rs 25,000/50,000
- All the Government sponsored pension schemes, APY, PM-SYM, PM-KMY and NPS-Traders may be brought under one
umbrella - An insurance program to cover the MSME employees and provide social security to them in terms of insurance benefits
and income protection for their families by way of an insurance scheme for MSME Promoter to cover losses in business
due to reasons beyond control of the promoter
18
Health Sector – Need of the hour
❑ With the Government support, the diagnostic services in the country have been upscaled up significantly
❑ Ensuring continuity in the availability of a minimum set of diagnostics appropriate to the level of care is imperative for improving
the overall quality of healthcare and patient experience. This will help to reduce the high Out of Pocket Expenditure (OOPE)
incurred by patients on diagnostics
❑ In FY24, India’s domestic medical devices market was valued at around ₹75,000 crore, and the medical devices segment is
expected to grow at a CAGR of 12-15% over the next five years. Extending the PLI scheme would allow manufacturers to
scale up production, reduce reliance on imports, and contribute to the country’s “Make in India” initiative
❑ Tax incentives for R&D and value-added activities in Global Capability Centres (GCCs) could foster innovation and generate
employment
❑ A uniform GST rate of 5%/12% on medical devices, from the current GST rates range from 5% to 18%, which is creating
complications for manufacturers and distributors. This uniform tax structure could simplify compliance, improve operational
efficiency, and lower costs in the sector
❑ The National Health Policy 2017 has set a target of increasing healthcare spending to 2.5% of GDP in 2025 (1.27% in FY16,
1.95% in FY24). However, a more aggressive target of 5% could be required to address the growing needs of India’s ageing
and expanding population
❑ Allocate proceeds from healthcare cess and the proposed 35% GST slab on tobacco and sugar products to strengthen public
health programme
19
Indirect Tax (GST)
- Roadmap of GST 2.0: Need for second round of reforms in GST (GST 2.0) with the rationalization of tax rates and inclusion of
electricity tariff → then Aviation turbine fuel → and finally Petrol/Diesel. Exempting / Lowering health insurance products from
GST at least for all retail and health focused products - Definition of Input Service Distributor may be amended to bring better clarity and reduce litigation in future due to
interpretational issues.
- (Section 2 (61) and Section 20 (1) of GST Act 2017) words “for or on behalf of distinct persons” be replaced with “for the benefit of distinct
persons”. - Section 20 (2) of GST Act, 2017, words “paid by a distinct person registered in the same State” may be deleted.
- Section 20 (3) of GST Act, 2017 – explanation may be added to accept ISD distributed by the Bank without challenging the valuation]
- GST TDS on payment: – Interchange fees paid through settlement agencies like NPCI, Master and VISA. Transaction charges
are settled on real-time basis and the invoice wise details are received subsequently. Banks are required to pay the GST TDS
and subsequently claim refund of the same from the member Banks. Considering practical difficulties faced in complying with
TDS provisions, GST TDS should not apply on banking services
20
Sector-Specific Suggestions
21
Specific Suggestions - Infra Financing: Government may introduce alternate sources of funding to Infrastructure Projects, which are
generally cheaper than loan markets for better rated borrowers like Tax Free Bonds, Tax Paid Bonds, etc. - Agriculture: (a) Forming a comprehensive omnibus Credit Guarantee Fund Trust-Agri & Allied Sectors (CGFTAAS) which will act as a credit accelerator and ensure coverage of all fresh Agri loans including AVCF (Agri Value
Chain Financing), (b) Implement the 2021 report on agri value chain. - Housing: The definition of PSL may be aligned with definition for affordable housing, wherein, projects with a cost
of ₹ 65 lakh (in 6 Metros) are covered and projects with a cost of ₹ 50 lakh at other centres are eligible (last revised
in 2018). - MSME: (a) Sectors such as Textile, Garments, Handicraft, Food Processing, Leather, Electronics, Auto
Components, Bulk Drugs etc. can be considered for separate PLIs for MSME, (b) Increase budgetary allocation to
expand the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and incentivize banks to
cover more MSME loans under this scheme. - Green Taxonomy: Budget may announce a suitable green taxonomy for India so that fund can be channelized
towards targets set under NDC of India submitted to UNFCCC - Disaster Pool: In line with the existing Nuclear Pool, Terrorism Pool in India, we should create a public-private
solution / Disaster Pool for natural disaster risk involving the insurance sector could offer many benefits - Education: Skill development and professional education in collaboration with global institutes of repute
across a broad spectrum that revamps bringing marquee universities in traditional as also emerging
technology areas, giving collaboration a thrust as we aspire to become a knowledge economy as also
opening more overseas centers of select al India institutes to attract the global diaspora
Disclaimer:
This Report is not a priced publication of the Bank. The
opinion expressed is of Research Team and not necessarily
reflect those of the Bank or its subsidiaries. The contents
can be reproduced with proper acknowledgement. The writeup on Economic & Financial Developments is based on
information & data procured from various sources and no
responsibility is accepted for the accuracy of facts and
figures. The Bank or the Research Team assumes no liability
if any person or entity relies on views, opinion or facts &
figures finding in this Report.
Contact Details:
Dr. Soumya Kanti Ghosh
Group Chief Economic Adviser
State Bank of India, Corporate Centre
Nariman Point, Mumbai – 400021
Email: soumya.ghosh@sbi.co.in
gcea.erd@sbi.co.in
Phone:022-22742440
:@kantisoumya