Budget 2025: 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 the budget speech of Finance Minister Nirmala Sitharaman on February 1, 2025, states that the Center may abolish all exemptions under the old tax system and replace them with the new tax system.
Budget 2025: The report recommends increasing the limit of National Pension System (NPS) 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. Apart from this, SBI Research has proposed reducing the tax rate to 15% for the income limit of Rs 10-15 lakh and imposing a uniform 15% tax on all bank deposits.
What do experts expect from the government
SBI Group Chief Economic Advisor Dr. Soumya Kanti Ghosh said in the report, ‘We estimate that the Government of India can ensure better tax compliance in income growth and promote consumption by including everyone under the new tax system.’ It is possible that by implementing such a measure, the government’s tax revenue may decrease slightly.
SBI Research predicted these changes
- All exemptions will be subsumed under the new tax regime. Also, the NPS limit will be raised from Rs 50,000 to Rs 1 lakh and medical insurance exemption will be raised from Rs 25,000 to Rs 50,000.
- Retain the highest tax rate at 30% for income above Rs 15 lakh, but reduce the rate from 20% to 15% for income between Rs 10-15 lakh.
- Impose a uniform 15% tax on bank deposits across all maturity periods. This income should be clubbed with other income and separated from the highest income bracket.
- Raise the tax exemption limit on savings account deposits 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, there have been earlier appeals to the government to reduce tax rates and expand tax exemptions under the new system.
Expectations for the old tax system
There has been no official announcement by the government regarding the abolition of the old tax system. However, there are constant discussions about its future. The new tax system introduced in the Union Budget 2020 offers lower tax rates without the exemptions and deductions available under the previous system. Despite the growing popularity of the new tax regime due to its simplicity, many taxpayers still prefer the old system as it offers several deductions and exemptions under sections 80C and 80D.
