Russia is preparing to move the taxation of bank-deposit interest inside the banking system. Under a bill submitted to the State Duma on 20 October 2026, banks would calculate and withhold personal income tax when they pay interest, while those earnings would be added to salary and other taxable income.
The change could push some people with annual income above 2.4 million roubles into higher tax bands, with rates on interest rising from the current 13–15 per cent range to as much as 22 per cent. The Finance Ministry says the proposal would raise more than 450 billion roubles a year for the federal budget. It is not yet law, and its practical effect will depend on the final text and transition rules.
The tax would be taken before the money reaches the customer
Under the system in place in October 2026, Russian banks pay deposit interest in full. The Federal Tax Service then brings together income from a citizen’s different accounts, calculates the tax due and sends a notice. The taxpayer must pay by 1 December of the following year.
The proposed system would reverse that sequence. Banks holding a customer’s deposits would become tax agents. Whenever interest was paid, they would assess whether the relevant income exceeded the tax-free threshold, withhold the tax and transfer it to the budget. The customer would receive the net amount rather than the full interest followed by a later bill.
The exemption would remain based on the existing formula: 1 million roubles multiplied by the highest key rate of the Central Bank of Russia. The reference rate would be the highest rate recorded during the previous year. Interest below the resulting threshold would remain exempt, while the excess would be subject to tax.
For the Finance Ministry, the arrangement offers an administrative advantage. Individuals would no longer have to wait for an annual notice or prepare for a large payment months after receiving the interest. For the state, however, the more immediate benefit is financial: tax revenue would arrive throughout the year, directly through the banking system.
Interest would join salary in the progressive scale
The more significant change concerns the tax base. Interest from deposits would be included with wages and other taxable earnings in the general progressive personal income tax system, rather than being treated separately.
That could matter to taxpayers whose combined annual income exceeds 2.4 million roubles. Depending on the total amount, the rate applied to the interest could rise from the existing 13 or 15 per cent levels to between 15 and 22 per cent. The size of the deposit would not, by itself, determine the rate. The deciding factor would be the combination of salary, interest and other taxable income.
A worker already close to a tax threshold could therefore move into a higher band because of interest earned on savings. The proposal would make the tax treatment of a deposit dependent more directly on the account holder’s wider financial position.
That would also change how savers experience the charge. Instead of receiving all the interest and settling the tax later, they would see the deduction as soon as the interest was credited. The cost would be more immediate, particularly for people with substantial savings or several sources of income.
Several banks could produce several answers
The proposed role for banks creates a basic coordination problem. A bank knows how much interest it pays, but it may not know what the same customer earns from deposits held elsewhere. Each institution could therefore be working with only part of the information needed to apply a rate based on total income.
The timing of payments could make the calculation harder. One bank might pay monthly interest, another might pay at the end of a fixed term and a third might make a single annual payment. If the final tax position differs from the deductions made during the year, the system will need a clear reconciliation process.
The arrangements for returning overpaid tax have not yet been fully set out in the material reported about the bill. That question would be particularly important where a customer uses several banks, income changes during the year or separate institutions each withhold tax without seeing the complete picture.
Unless the final legislation establishes a reliable correction and refund mechanism, the reform could shift administrative complexity rather than remove it. Responsibility would be divided between the banks, the taxpayer and the tax authorities, with the risk of errors concentrated around customers whose savings are spread across several institutions.
A difficult handover in 2027
The automatic withholding system is expected to begin in 2027. At the same time, tax on interest earned during 2026 could still be payable under the existing procedure. A taxpayer might therefore have to settle a liability for the previous year while banks were already withholding tax from new interest payments.
That would not necessarily amount to double taxation: the two obligations would relate to different tax periods, and the result would depend on the transition provisions in the final law. It could nevertheless create a temporary cash-flow squeeze for households with large deposits. A payment linked to 2026 and immediate deductions from 2027 income could reduce available funds during the same period.
The change would also alter the visibility of deposit returns. Under the current arrangement, the full interest is initially credited and the tax is paid later. Under the proposed system, the amount shown in the account would be lower from the outset, while any remaining liability from the old system could still be outstanding.
Long deposits could become less attractive
Deposits lasting three or five years often pay interest only when they mature. If several years of accumulated interest were recorded in a single tax year, the payment could sharply increase the customer’s reported income and help move them into a higher tax band.
That may encourage some savers to choose shorter deposits or products that pay interest more frequently, spreading the income over time. The scale of any response remains uncertain. It would depend on the final tax rules, the treatment of existing contracts and the rates offered by banks.
For lenders, the distinction matters. Long-term deposits provide relatively stable funding for loans, while short-term money can be withdrawn or moved more quickly. A shift in customer preferences could therefore change the structure of bank funding even if the overall amount held in deposits remained broadly unchanged.
The proposal combines a change in tax collection with a broader redefinition of how savings income is treated. Banks would become direct channels for tax payments, and deposit interest would be tied more closely to total earnings. The unresolved questions are practical but consequential: how will income held across several banks be reconciled, how will excess deductions be refunded and how will households manage the handover between the two systems?
Further details of the Finance Ministry’s proposal were reported here.
