A day before the Union Budget, State Bank of India chairman C S Setty batted for parity in tax treatment of returns on equity investments and bank deposits.

Setty said there is no disparity in taxation anywhere else in the world, and it is time for India to align with other markets as well.

“I think there should be a level playing field for the financial savings instruments,” he told reporters on the sidelines of a bank event in Mumbai.

Maintaining that he does not know the provisions in the budget, Setty acknowledged that there will be fiscal constraints of such a move, but added that there is no “special treatment” for equities anywhere else.

He also said that the provisions incentivising equity investments through easier taxation were probably justified at some point in time, but added that, given where we are today, where interest in the riskier equity markets is rising, no such treatment may be required.

At present, returns on deposits attract taxation as per a taxpayer’s tax slab, which can go up to 30 per cent, while returns made on listed equities have lower or concessional rates with a 12.5 per cent taxation on long-term capital gains of over ₹1.25 lakh and 15-20 per cent on short-term capital gains.

Bankers have been asking for parity between the two financial instruments for some time now, and the same has been intensified, especially after facing challenges in deposit mobilisation.

Many bankers say savers have become smarter, maintaining minimum balances in bank accounts while choosing to deploy excess money in equities, hoping for better returns. This reduces the resources for lending available with banks, and at times, they are forced to make excess investments in government bonds or also borrow from money markets to cater to credit demand.

Gift city

A senior banking industry official also sought an extension in the tax holiday provision for income booked in the International Financial Services Centre (IFSC) beyond the current 10 years to boost activity in Gujarat’s GIFT City.

Meanwhile, on the extension of tax holiday in IFSC incomes, the banking sector official said that activity in the GIFT City has not taken off as desired and added that the extension will help as it will prod lenders to book more business in India’s only IFSC.

The banker added that entities enjoy a 50-year tax holiday on incomes from presence in the Dubai International Financial Centre (DIFC), and underlined the need for the Indian government to also look at extending the tax to make the Indian IFSC more active.