Tax-saving FD lock-in should be cut to three years, at par with ELSS in Budget 2026: SBI

India’s largest lender, State Bank of India, has suggested changes to tax-saving fixed deposits in the Union Budget 2026 to encourage greater mobilisation of household savings into banks, at a time when the share of bank deposits in household financial savings has been declining. Data shows that bank deposits fell to 35.2% of household financial savings in FY25 from 38.7% in FY24.

To arrest this trend, SBI, in a report, has proposed that the lock-in period for tax-saving fixed deposits be reduced to three years, bringing it at par with equity-linked savings schemes of mutual funds. It also suggested that the tax treatment of interest earned on deposits should be aligned with long-term capital gains and short-term capital gains. In addition, the report recommended that there should be no TDS on interest income from savings bank deposits.

On the macroeconomic outlook, the report added that India continues to remain a bright spot, supported by strong fundamentals. Nominal GDP growth relevant for Budget calculations is expected to be around 10.5% to 11%. It cautioned that an uptrend in global commodity prices could percolate into higher wholesale price inflation. A slower pace of nominal growth could hurt tax revenues in FY27, making careful expenditure planning important.


However, it expects steps such as GST rationalisation and a reduction in marginal personal income tax rates to help cushion the impact of any slowdown in the tax base. Based on its nominal growth assumptions, SBI Securities expects the fiscal deficit for FY27 to be around 4.2% of GDP. The government’s cost of borrowing is estimated at 6.8% to 7.0%, with risks seen as evenly balanced.

Net central government borrowing for FY27 is projected at Rs 11.7 trillion, accounting for around 70% of the fiscal deficit. Repayments are estimated at Rs 4.60 trillion, including a buyback of about Rs 1 lakh crore and switches of roughly Rs 1.5 trillion. State gross borrowings are expected to be Rs 12.6 trillion, while repayments could total Rs 4.2 trillion. Given the scale of borrowing, SBI said the government and the RBI may need to work together to bring meaningful reforms in the state development loan market.

Further, SBI expects direct taxes to account for 59% of the Centre’s total tax revenue in FY26, the highest share in 15 years. As a result, the share of indirect taxes in total tax revenue is expected to decline to 41%.

The report also highlighted that personal income tax collections have been growing faster than corporate tax collections since FY21, and it expects this trend to continue in the FY27 Budget as well. The sustained outperformance of personal income tax reflects changing income patterns and continued formalisation of the economy.

On non-tax revenue, SBI Securities expects stable growth, with dividends from the Reserve Bank of India and public sector banks likely to be in line with FY25 levels. However, non-tax revenue in FY26 could be impacted by volatile market conditions, even as the government looks to optimise collections from this stream.

On global trends, it noted that the post-pandemic recovery in high-income economies has been faster than the recovery seen after the 2008 global financial crisis. In contrast, upper middle-income economies have shown a weaker recovery than after the earlier crisis. Lower middle-income economies, including India, have followed a trend similar to high-income countries, with India outperforming both its peer group and high-income economies in the post-pandemic period.

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