Banks offer various loans (home, education, vehicle business, personal, gold, and so forth) at rates (fixed, floating) between 6.7 and 20%. The interest that the depositors obtain from the banks is taxed as ‘income’ and if we have a loan, we pay more money to the bank. For example, on a savings account of Rs 3 lakhs at a nominal rate of 4% a customer gets Rs 12k per year as interest and of this Rs 10k is tax exempted. On the balance of Rs 2k which is an ‘income,’ Rs.400 is deducted at 20% rate (most tax payers are in this slab). If the same customer avails a loan of Rs 3 lakhs at a rate of 10%, she or he has to pay Rs 30k to service the loan. This is a double whammy because a customer finally ends up paying Rs 18,400 (30k-12k = 18k) to the bank and income tax department. The government could double the present exemption limits (Rs 10k for savings and Rs 50k for FD) as this would encourage people to spend the untaxed money which will be good for the country’s economics.
