All the measures for senior citizens are for getting them back to banks. Since Interest rates are bound to come down which will not attract Senior citizens but as the equity markets will remain volatile getting a return of 12% or 15% in FY-26 seems difficult and this is the place where the government wants senior citizens to flood the Indian banking system with deposits.
In recent financial years, bank credit growth has significantly outpaced deposit growth. For instance, in FY24, while deposits grew by 13.5% to ₹204.8 trillion, non-food credit grew by 20.2% to ₹164.1 trillion. This gap has led to banks resorting to higher-cost funding options like bulk deposits or raising deposit rates to attract funds. There's been a noticeable decline in the share of Current and Savings Accounts (CASA), which are traditionally low-cost deposit sources for banks. The collective CASA ratio for commercial banks has decreased, with some reports noting a drop to around 40.5% in recent periods.
The Union Budget 2025-26 has introduced several measures
aimed at benefiting senior citizens in India. Here's a detailed breakdown of
what it offers:
- Doubled
Tax Deduction on Interest Income: The limit for tax deduction at
source (TDS) on interest earned from deposits has been increased from
₹50,000 to ₹1 lakh for senior citizens. This significantly reduces the tax
burden on their income from savings and fixed deposits.
- Simplified
Tax Filing: Senior citizens above 75 years, whose income solely
consists of pension and interest from the same bank, do not need to file
income tax returns if they meet certain conditions. This provision
simplifies tax compliance for many elderly individuals.
- Tax-Free
Withdrawals from Old NSS Accounts: Senior citizens with very old
National Savings Scheme (NSS) accounts, where no interest is accruing, can
now withdraw their savings tax-free on or after August 29, 2024.
Healthcare and Financial Security
- Universal
Health Insurance: Senior citizens aged 70 and above are now entitled
to health coverage under the Ayushman
Bharat PM-JAY scheme, offering up to ₹5 lakh in coverage regardless of
income. This initiative aims to ensure dignified healthcare for
approximately 6 crore senior citizens.
- Increased
Pension Benefits: There's a proposal to provide tax benefits or
exemptions on pension received from the Employee Pension Scheme, aiming to
alleviate the financial burden on retirees.
Savings and Investments
- Higher
Investment Limits in SCSS: The Senior Citizens Savings Scheme (SCSS)
has seen an increase in its maximum investment limit, offering an 8%
interest per annum, paid quarterly, which is a significant source of
income for many seniors.
- Enhanced
Post Office Savings Schemes: The Monthly Income Scheme by the post
office has become more attractive with increased investment limits,
providing a steady income source for senior citizens.
Other Financial Relief
- Relaxed
TCS on Foreign Remittances: The threshold for tax collection at source
(TCS) on foreign transactions under the Liberalized Remittance Scheme
(LRS) has been raised from ₹7 lakh to ₹10 lakh, easing financial
transactions abroad for senior citizens.
- Higher
TDS Threshold on Rent: The TDS threshold on rent payments has been
increased from ₹2.40 lakh to ₹6 lakh per annum, reducing the tax burden on
senior citizens who might be paying rent.
Administrative and Compliance Simplification
- No
Need for Form 15H: With digital income data access, there's a move to
eliminate the need for senior citizens to submit Form 15H to banks to avoid TDS if their income is below taxable limits, simplifying the
process.
- Streamlined
Compliance: Efforts to simplify the overall compliance burden through
digital means, reducing the need for physical documentation and
interactions for tax and financial management.
Conclusion:
The decline in bank deposits is a multifaceted issue
involving changes in savings behaviour, competitive pressures from alternative
investment options, and the need for banks to manage their liquidity
efficiently. Banks are adapting through various strategies, but the situation
requires continuous monitoring and potentially further policy interventions to
ensure the banking sector's stability and support sustainable economic growth.