Budget 2020: SBI demands income tax incentive for salaried class, hike in Section 80C from Nirmala Sitharaman

Budget 2020: The State Bank of India (SBI) has demanded from the Finance Minister Nirmala Sitharaman to incentivise savings for the salaried class with a hike in Section 80C. The largest Indian commercial bank was of the opinion that it would generate at least five times more household savings into the retirement corpus than the revenue foregone.

Batting for a hike in Section 80C limit of the Income Tax Act 1961 Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI said, "When the Government had notified increase in PPF limit by Rs 50,000 to Rs 1,50,000 in Aug’14, its impact on household savings was enormous. During FY15 over FY14, Provident and Pension Funds increased by merely Rs 13,000 crore but during FY16 over FY15, it increased by more than Rs 1 lakh crore. We believe that an increase in PPF limit by Rs 1 lakh to Rs 2.5 lakh for individual households under 80C will lead to additional savings of more than Rs 2 lakh crore compared to the revenue foregone of Rs 23,000 crore. Even we add up the extra interest burden of around Rs 17,000 core (@ 8.5% on Rs 2 lakh crore), the total revenue foregone is only Rs 40,000 crore compared to Rs 2 lakh crore jump in savings (incentive saving multiplier is at least 5 times more!)." 

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SBI's Group Chief Economic Adviser further said that for the salaried class, it might be a myth of not proving tax relief to 4 per cent of people paying taxes since they contribute a significant part to overall consumption and in FY19 overall their gross taxable income is estimated at Rs 46 lakh crore, which is 41 per cent of the overall private final consumption expenditure. It might also be a better idea to incentivise savings for the Salaried Class with a hike in Section 80C that could generate at least 5 times more household savings into retirement corpus than revenue foregone by the Government! 

"There are around 41 million Senior Citizens term deposits accounts in the country with a total deposit of Rs 14 lakh crores, which is 7 per cent of India’s GDP. The average deposits size per account is around Rs 3.3 lakh and interest income from such deposits forms 5.5 per cent of Private Final Consumption Expenditure in FY19. It is imperative that the Government exempts such interest income from taxes or increases the threshold limit," Dr. Soumya Kanti Singh said.