Budget 2026: Tax on fixed deposit interest like LTCG and STCG, suggests SBI Research

In the lead-up to Budget 2026, SBI Research has suggested that the government should make taxation of fixed deposit interest at par with long-term capital gains (LTCG) and short-term capital gains (STCG).

Such a move will help boost household savings through bank deposits.

In a report titled, Prelude to Union Budget 2026-27, SBI Research today (January 26, 2026), said that bank deposits in household financial savings have declined from 38.7% in FY24 to 35.2% in FY25.

Therefore, it has suggested that tax treatment for interest on deposits should be at par with LTCG and STCG.

SBI Research has also suggested the following changes with respect to taxation of bank deposits:

• Lock-in period for Tax savings FD may be made equal to ELSS of Mutual funds (3 years) to encourage deposit mobilization into banks

• No TDS on Savings Bank Deposits interest

"To boost financial savings: (a) tax treatment for interest on deposits should be at par with LTCG and STCG, (b) Lock-in period for Tax savings FD may be made equal to ELSS of Mutual funds (3 years), TDS on Savings Bank Deposits interest threshold be raised," SBI Research said.

What are current tax rates for LTCG, STCG and Fixed Deposit interest?

Currently, STCG from equity is taxed at 20% while LTCG is taxed at 12.5%. There is also a tax exemption on up to Rs 1.25 lakh LTCG from equity shares and equity mutual funds.

In contrast, interest from fixed deposits in banks and post offices is taxed at individual slab rates, which goes up to 30% or even more for a large number of taxpayers.

Finance Minister Nirmala Sitharaman will present Union Budget 2026 on February, 2026.

According to SBI Research, the nominal GDP growth relevant for Budget math is expected at ~10.5%-11% as surge in international commodity prices may percolate in WPI inflation. Based on that, fiscal deficit is expected to be at ~4.2% of GDP for FY27. Though the new GDP series may alter the fiscal arithmetic.