Finance Minister Nirmala Sitharaman may make a big announcement in the budget regarding the old tax regime and taxpayers may get a shock. The SBI Research report, released ahead of Finance Minister Nirmala Sitharaman’s budget speech on February 1, 2025, said that the Center may abolish all exemptions under the old tax regime and convert them into the new tax regime.
The report recommends increasing the National Pension System (NPS) limit from Rs 50,000 to Rs 1 lakh and increasing the health insurance deduction under Section 80D from Rs 25,000 to Rs 50,000. Additionally, SBI Research has proposed reducing the tax rate to 15% for the income limit of Rs 10-15 lakh and implementing a uniform 15% tax on all bank deposits.
What do experts expect from the government?
Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, said in the report, ‘We estimate that the Government of India can ensure better tax compliance by including everyone under the new tax regime, income growth and boost consumption. .’ It is possible that implementing such a measure may result in a slight reduction in the government’s tax revenue.
SBI Research expressed the possibility of these changes
- All exemptions will be included under the new tax system. Also, the NPS limit will be increased from Rs 50,000 to Rs 1 lakh and the medical insurance exemption will be increased from Rs 25,000 to Rs 50,000.
- Maintain the top tax rate at 30% for income above Rs 15 lakh, but reduce the rate from 20% to 15% for income of Rs 10-15 lakh.
- Apply uniform 15% tax on bank deposits in all mature periods. This income should be added to other income and separated from the highest income group.
- The tax exemption limit on deposits in savings accounts should be increased to Rs 20,000.
- SBI Research suggested that the proposal could lead to a revenue loss of Rs 50,000 crore, equivalent to 0.14% of GDP.
- As Budget 2025 is approaching, the government has already been appealed to reduce the tax rate and widen tax exemptions under the new system.
Expectations of the old tax system
No official announcement has been made by the government regarding abolition of the old tax system. However, there is constant discussion about its future. The new tax regime introduced in the Union Budget 2020 offers a lower tax rate without exemptions and deductions available under the previous system. Despite the increasing popularity of the new tax system due to its simplicity, many taxpayers still prefer the old system as it offers many deductions and exemptions under sections 80C and 80D.
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