Budget 2026 banking expectations: Pension changes, insurance reforms, tax relief & more

Union Budget 2026 is knocking on the door and different sectors have laid out their expectations and demands from the government. According to a report by the State Bank of India, this Budget can be an opportunity for the central government to introduce reforms in taxation, insurance and pension schemes aimed at boosting household savings, easing compliance challenges, and enhancing social security coverage.

The report threw light on falling bank deposits as a share of household financial savings, falling from 38.7% in FY24 to 35.2% in FY25. To encourage greater participation in the banking system, SBI has recommended a range of tax relief measures.


The report called for the tax treatment of interest income on bank deposits to be aligned with long-term and short-term capital gains. “To boost financial savings: (a) tax treatment for interest on deposits should be at par with LTCG and STCG,” it stated.

Additionally, the report suggested to cut down the lock-in period for tax-saving fixed deposits to three years, making them equivalent to Equity Linked Savings Schemes (ELSS), with the aim of improving deposit mobilisation. The bank also proposed that the upcoming Budget should either remove TDS on savings bank deposit interest or raise the threshold to ease the burden on small savers.

On the indirect tax front, SBI has urged changes to the GST provisions related to Input Service Distributors (ISD), in order to provide clarity and limit litigation. It recommended replacing the phrase “for or on behalf of distinct persons” with “for the benefit of distinct persons” in the GST Act, 2017, along with deleting certain provisions and adding an explanation to Section 20(3) to allow banks to accept ISD distributions without disputes over valuation.

The report highlighted practical difficulties for banks in applying GST TDS on payments such as interchange fees routed through settlement agencies including NPCI, Visa and MasterCard. As these payments are settled in real time, banks must pay GST TDS before receiving detailed invoices and later claim refunds. SBI suggested that GST TDS should not apply to banking services.

On the insurance front, SBI drew attention to falling penetration rates, which fell to 3.7% in FY25 from 4% in FY23 and 4.2% in FY22, according to IRDAI data. The report also expressed concern over the decline in life insurance penetration in the context of IRDAI’s “Insurance for All by 2047” goal. It noted that around 69% of complaints in FY25 were related to claims, pointing to the need for reforms, particularly in health insurance.

SBI concluded that implementing these measures in the Budget 2026 would not only support long-term economic stability but also enhance the financial wellbeing of households across the country.