Union Budget 2025: Expectation of the Financial Services Sector

As the Union Budget 2025 approaches, the financial services sector is buzzing with expectations aimed at promoting economic growth and stability. Industry stakeholders  are advocating for measures that encourage savings, support green initiatives, and streamline financial operations. Here is a glimpse into the key expectations of the financial sector from the forthcoming budget.

Tax Incentives on Fixed Deposits  

Fixed deposits have traditionally been a preferred savings instrument for many Indians. However, recent years have seen a dip in household savings via this mode. To counter this trend, banks and financial institutions are urging the government to introduce tax incentives on fixed deposits. Such measures could make these instruments more attractive, encouraging individuals to save more and thereby increasing the funds available for lending and investment. 

At present, the only tax benefit you can gain from fixed deposits is if you invest in a tax-saving FD to claim tax deduction under Section 80C of the Income Tax Act. However, the limit of this deduction is up to ₹ 1.5 Lakhs and these FDs come with a lock-in of 5 years.

Refinance Window for Green Finance and Electric Vehicles  

With the global shift towards sustainable development, there is a growing emphasis on green finance—funding for environmentally friendly projects. Non-banking finance companies (NBFCs) are advocating for a dedicated refinance window to support green finance initiatives, particularly in the electric vehicle (EV) sector. By providing a specific fund for refinancing green assets, the government can facilitate easier access to capital for businesses and consumers investing in sustainable technologies.

Alignment of Long-Term Capital Gains Tax  

Currently, there is a disparity in the tax treatment of various investment instruments. In last year’s Union Budget, some changes were made regarding how equity and debt capital gains are taxed. This included the enhanced exemption limit for equity gains to ₹1.25 lakh and a higher tax rate of 12.5%. 

However, representatives from the financial services sector suggest aligning the long-term capital gains tax across different financial products. Harmonising tax rates can eliminate biases towards particular investment avenues, allowing investors to make choices based on returns and risk appetite rather than tax implications.

Support for Micro, Small, and Medium Enterprises (MSMEs)  

MSMEs are an integral part of the Indian economy that contribute significantly to employment and GDP. The financial sector anticipates budgetary provisions that enhance credit access for MSMEs. Proposals include establishing funds dedicated to refinancing loans for small businesses and reducing the threshold (currently set at ₹20 lakh) for asset seizure under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. 

Raman Aggarwal, who is the Director of Finance Industry Development Council (FIDC) opined that such measures can provide MSMEs with the necessary financial support to thrive in a competitive market and boost NBFC revenues as well.

Simplification of Tax Deducted at Source (TDS) Provisions  

The current TDS provisions are seen as cumbersome by many in the financial services sector. There is a call for the removal of TDS on interest payments to non-individual borrowers, as the revenue gained from this provision is minimal. Simplifying TDS norms can reduce administrative burdens and improve the ease of doing business, fostering a more conducive environment for financial transactions.

Enhancing Capital Market Efficiency  

To attract more investors and deepen the capital markets, stakeholders are recommending reforms aimed at improving market efficiency. Suggestions include streamlining regulatory frameworks, promoting financial literacy, and introducing incentives for long-term investments in both debt and equity markets. A robust capital market can serve as a catalyst for economic growth by efficiently allocating resources to productive sectors.

Focus on Digital Infrastructure  

In an era where digital transactions are becoming the norm, the financial sector expects the budget to prioritise investments in digital infrastructure. Enhancing cybersecurity measures, expanding internet connectivity in rural areas, and promoting digital literacy are crucial steps. Such initiatives can facilitate the seamless adoption of digital banking and payment systems, ensuring financial inclusion across the country.

Stakeholders remain hopeful that the forthcoming Union Budget 2025 will incorporate these recommendations and give a boost to the financial services sector.