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The government expects income tax-related measures announced in the Union Budget 2025-26 to lead to additional bank deposits to the tune of Rs 40,000-45,000 crore, helping the banks to lend more, Financial Services Secretary M Nagaraju said Monday. The likely additional inflows, although not massive, are also expected to ease banking sector liquidity to some extent.
“These measures, as per our assessment, suggest that about Rs 40,000-45,000 crore will flow into banks as deposits. Additional deposits will increase the banking system’s liquidity, reducing dependence on high-cost borrowings,” Nagaraju said in a post-Budget interaction with journalists. In the Budget, which was presented on Saturday, Finance Minister Nirmala Sitharaman announced hikes in tax deducted at source (TDS) thresholds for senior citizens and others, apart from further sweetening the New Tax Regime (NTR) by way of a cut in tax rates and an increase in rebates.
These measures are bound to leave more money in the hands of people, which they may spend, invest, or save. The government, on its part, is not being prescriptive on what taxpayers should do with their tax savings, and is of the view that taxpayers’ gains would be ploughed back into the economy either by way of higher consumption, investments, and even savings.
As per the income tax proposals announced in the Budget, while those with annual taxable income of up to Rs 12 lakh will have no tax liability, those with higher incomes will have savings of up to Rs 1.1 lakh on account of rate rationalisation under the NTR. On the TDS front, the Finance Minister announced that the threshold for TDS on interest income will be doubled to Rs 1 lakh for senior citizens, and hiked to Rs 50,000 from Rs 40,000 for other individuals. This means that banks will not deduct tax up to an annual interest income of Rs 50,000 for non-senior citizen depositors, and up to Rs 1 lakh for senior citizens.
“Since TDS directly influences fixed deposit behavior, we are expecting, based on some calculations, little more than Rs 15,000 crore additional deposits (from senior citizens) in banks… Based on our methodology, we expect around Rs 7,000 crore in additional deposits (from non-senior citizens),” Nagaraju said.
Currently, senior citizen deposits are around Rs 34 lakh crore. The total deposits in the banking system stood at Rs 221.5 lakh crore as of January 10, 2025. The Financial Services Secretary said that the slab changes and higher tax-free rebate under the NTR could lead to around Rs 20,000 flowing into the banking system, adding that in his discussions with banks after the Budget announcements, they expressed expectations of higher deposits due to the measures announced.
“We are expecting about Rs 20,000 crore will come back to the banks. This (tax saving) is an additional income and everybody will not spend that. They will at least keep it for some time as fixed deposits…So together we expect between Rs 40,000 crore to 45,000 crore additional bank deposits into the system. With this, the banks will be able to lend more,” Nagaraju said.
