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Informist, Monday, Feb. 3, 2025

 

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--Banking secy: See INR 400 bln-INR 420 bln extra bank deposits on tax cuts 
--CONTEXT: Banking secy Nagaraju speaking at post-Budget media briefing 
--Banking secy: May table Insurance Amendment Bill in Budget Session 
--Banking secy: To submit Insurance Amendment Bill for Cabinet nod shortly 
--Banking secy: Will also tweak LIC Act, IRDAI Act 
--Banking secy: India's start-up fund drying up, govt trying to revive it 
--Banking secy: Want to regularise equity funding from bks to start-ups

NEW DELHI - The income tax bonanza in the Union Budget for 2025-26 (Apr-Mar) in the form of rebate and other tax changes are likely to help garner bank deposits to the tune of INR 400 billion-INR 420 billion in FY26, Department of Financial Services Secretary M. Nagaraju said.

 

"We see over INR 200 billion coming back into the banking system due to the hike in tax rebate limit, over INR 150 billion from the hike in TDS threshold on interest earned from savings deposits by senior citizens," the secretary said at a post-Budget media briefing. Besides these two heads, INR 70 billion is seen coming from non-senior individuals tax savings due to the income tax slab changes, he added.

 

One of the key takeaways from Finance Minister Nirmala Sitharaman's eighth Budget speech on Saturday was the hike in the tax rebate limit to INR 1.2 million, effectively meaning that individuals with income of up to INR 1.2 million per year will be entirely exempted from paying income tax. This move was aimed at increasing disposable income in the hands of taxpayers to spur demand.

 

Another key announcement in the Budget was the decision to increase 100% foreign direct investment in the insurance sector. The financial services secretary said that the move was aimed at improving the corpus of the insurance sector so that investments can go to the infrastructure sector.

 

"Need an improved insurance corpus to channelise them into robust asset creation," he said. While the government does not have any estimate on the volume of investment flows expected due to the new limit, Nagaraju said that given the "positive feedback from foreign investors", it could lead to a "significant inflow".

To enable a hike in the FDI limit for the sector, the Insurance Act will have to be amended. The finance minister has already approved the draft of the Insurance Amendment Bill and the financial services department will reach out to the Cabinet for approval "shortly". Depending on when the Cabinet gives its approval, the Bill will be tabled in Parliament. "We would be happy to table it in the Budget session itself," Nagaraju said.

 

Alongside the Insurance Amendment Bill, the government will also make amendments to the LIC Act and the IRDAI Act. Tweaks to the LIC Act will be made to empower the board to undertake operational decisions like office expansion, recruitment and hikes, the secretary said. On the other hand, the IRDAI Act will be tweaked to enable the provision of composite licensing as well as the FDI limit.

The Budget on Saturday also announced setting up a new 'fund of funds' for start-ups with a corpus of INR 100 billion. Nagaraju said that as India's start-up investments were drying up, the government recognised the need to incentivise funding into the sector. He said that a few banks have tried to fund start-ups through equity funding and the government would like to "regularise" this investment model.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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