Equity LTCG tax relief buzz: SBI wants level playing field for bank deposits; key points for FD, savings account holders
The ongoing debate over capital gains tax relief has put equity taxation in the spotlight. SEBI has recommended scrapping LTCG tax for foreign investors and exempting domestic mutual fund investors from LTCG tax when they sell existing holdings after one year to reinvest in new schemes, according to a Reuters report on 2 November.
Recently, during a fireside chat at the FE Leadership Awards, Finance Minister Nirmala Sitharaman acknowledged investor concerns about equity taxation. “I appreciate and recognise the concerns and anxieties prevailing among retail investors and equity market participants,” she said.
SBI Research's Ecowrap report dated 12 October first suggested abolishing LTCG tax “for all class of investors”. Its latest report, on 2 November, explores alternative tax relief measures for equity investors and explains why bank deposits also need a more favourable tax treatment. Here's what bank depositors and customers should know.
Currently, equity investments held for more than 12 months are subject to LTCG tax at 12.5%, with an annual exemption of ₹1.25 lakh. SBI Research has proposed linking this ₹1.25 lakh exemption threshold to inflation instead of retaining the existing flat limit. This would help the exemption keep pace with the expanding retail investor base.
It has also suggested preferential tax treatment for longer holding periods. For instance, investments held for more than two to three years could attract zero LTCG tax, compared with the existing 12.5% rate for investments held for one to two years.
The report has also discussed reviewing LTCG taxation alongside a possible 50% increase in the Securities Transaction Tax (STT). Another suggestion is to allow investors to defer LTCG tax on a pro rata basis when mutual fund redemption proceeds are reinvested in eligible equity mutual funds within 90 days.
Alongside equity tax reforms, SBI Research has called for changes in the taxation of bank deposits to prevent savings from shifting disproportionately towards equities.
Without these adjustments, “the incentives for investment in equities would significantly outweigh the incentives for investment in bank deposits.”
Currently, interest earned on savings bank accounts is eligible for a deduction of up to ₹10,000 for eligible taxpayers. SBI has suggested increasing the tax exemption threshold on savings account interest from the existing ₹10,000 to ₹20,000.
SBI Research noted that term deposits have “witnessed greater favour with savers, with elevated rates attracting higher proportions.” This includes bank fixed deposits (FDs), which have attracted savers amid relatively higher interest rates. For term deposits, it has suggested replacing the existing tax treatment across different maturity periods with a flat 15% tax rate.
Currently, FD interest is added to your taxable income and taxed at your applicable slab rate.
For depositors, this could mean a higher tax-free interest limit on savings accounts and a uniform tax rate on term deposit interest. The broader objective is to ensure that traditional bank savings remain less attractive than equity investments.
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.
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