The draft bill was submitted Wednesday to the ongoing 28th session of the Standing Committee of the National People's Congress (NPC), or the top legislature, for deliberation.

In recent months, China has seen large sums of money flow from deposit accounts into stock trading accounts.

Chinese people have always been keen on putting their money in banks but a bull stock market and soaring housing prices have made many realize that the yield on bank deposits is simply too low, said Huang Fuguang, a finance professor at Tianjin-based Nankai University.

Related readings:  Interest tax likely to be suspended soon  All eyes on CPI to gauge future monetary moves  May figures spark talk of interest rise Special Coverage: Markets Watch Interest Rate Hike

China began to tax interest earned on savings accounts on November 1, 1999. The 20-percent tax was levied on all Renminbi and foreign currency savings accounts opened by individuals in banks in China.

By the end of 2006, the tax had generated 215 billion yuan.

"Taxing the interest on savings accounts has encouraged consumption and investment and helped regulate personal incomes," said Jin Renqing, Minister of Finance on Wednesday to legislators.

In the current economic climate, with the consumer price index rising, returns from personal bank savings had declined, he acknowledged.

After a number of voices were raised in recent weeks calling for higher returns on personal bank savings, the top legislature has now decided to look into the matter.

Jin said China's economy is developing strongly. "In these conditions, state finances are able to handle a suspension or reduction of the tax on interest on saving accounts."

(For more biz stories, please visit Industry Updates)