SBI Calls for Tax Reforms to Boost Savings in Union Budget 2026

The State Bank of India (SBI) has recommended significant reforms in taxation, insurance, and pensions ahead of the Union Budget 2026. The objective is to enhance household financial savings, ease compliance burdens, and improve social security coverage across the nation.

According to SBI’s report, the proportion of household financial savings held in bank deposits has dropped sharply from 38.7 percent in FY24 to 35.2 percent in FY25. To reverse this trend, SBI advocates for tax relief measures aimed at depositors. The report suggests that the tax treatment for interest income on bank deposits should align with that of long-term and short-term capital gains (LTCG and STCG).

To stimulate financial savings, SBI proposes that tax treatment for interest on deposits be placed on par with LTCG and STCG. Additionally, the bank recommends reducing the lock-in period for tax-saving fixed deposits to three years, matching the terms of Equity Linked Savings Schemes (ELSS) in mutual funds to enhance deposit mobilization.

The report also highlights the need to eliminate the Tax Deducted at Source (TDS) on savings account interest or to increase the threshold, which would provide relief to smaller savers.

On the indirect tax front, SBI suggests amendments to the Goods and Services Tax (GST) provisions related to the Input Service Distributor (ISD). The aim is to clarify existing regulations and reduce legal disputes. The report recommends changing the phrasing from “for or on behalf of distinct persons” to “for the benefit of distinct persons” in relevant sections of the GST Act of 2017. Furthermore, it calls for the removal of certain provisions that cause interpretational challenges and for an explanatory note in Section 20(3) to allow ISD distributions by banks without valuation disputes.

SBI also pointed out the practical difficulties banks face in complying with GST TDS provisions on transactions such as interchange fees processed through settlement agencies like NPCI, Visa, and MasterCard. Since these transactions are settled in real time, banks are required to pay GST TDS upfront and later claim refunds, leading to operational inefficiencies. As a solution, SBI suggests that GST TDS should not apply to banking services.

In the insurance sector, SBI noted a troubling decline in insurance penetration in India, which fell to 3.7 percent in FY25, down from 4 percent in FY23 and 4.2 percent in FY22, according to data from the Insurance Regulatory and Development Authority of India (IRDAI). Life insurance penetration specifically decreased to 2.7 percent, while non-life insurance remained at 1 percent. This dip raises concerns regarding IRDAI’s goal of achieving “Insurance for All by 2047.”

The report also indicated that approximately 69 percent of complaints received in FY25 were related to claims, underscoring the urgent need for reforms, particularly in the health insurance domain.

SBI emphasized the necessity of a well-structured pension system that guarantees a minimum pension. The bank believes that addressing these issues in the upcoming Union Budget could significantly enhance financial security and contribute to long-term economic stability.

The insights from SBI reflect a critical examination of the financial landscape in India, underscoring the need for reforms across various sectors to bolster savings and ensure better protection for the populace.