Economic Survey 2025-26: CEA recommends rationalising tax on debt-assets

The Economic Survey of India 2025-26 pitched for developing the debt securities by rationalising their taxation.

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The development of debt instruments like corporate bonds, as an investment avenue, would “reduce capital costs, mobilise savings efficiently, and offer households reliable income-generating products,” wrote the Chief Economic Advisor V. Anantha Nageswaran.

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Currently, short-term capital gains from debt instruments are taxed at the tax rates applicable to investors. For equities, however, holding less than a year attracts a capital gain tax of 20% and more than a year attracts 12.5% rate.

The survey noted that Indian household savings had financialised with equity assets (both direct stocks and mutual funds) constituting 23% of household assets in fiscal 2025, as against 19% five years earlier.

Debt assets constituted a marginal share. “A well-diversified portfolio should include adequate exposure across a broad range of asset classes. In this context, participation in debt, specifically market-based debt instruments, has not kept pace with the significant reorientation of household savings towards equities.

The household ownership share of deposits has decreased, while that of pension and insurance assets has remained almost unchanged over the period from FY19 to FY24,” the CEA noted while writing about the state of monetary management and financial intermediation.

The CEA further added that “securitisation is limited, municipal bonds are underdeveloped, and pension and insurance funds remain conservative investors due to regulatory and cultural inertia,” and added that there needs to be a coordinated agenda to address the barriers, which would include tax rationalisation. Besides, he recommended creating credit enhancement facilities for lower-rated issuers, revising investment guidelines for long-term funds among others.