Finance Minister Nirmala Sitharaman may make a significant announcement regarding the Old Tax Regime in the upcoming Budget, potentially delivering a blow to taxpayers. According to a report released by SBI Research ahead of the Budget speech on February 1, 2025, the government might eliminate all the deductions under the old tax regime and shift them to the new tax system.
The report suggests increasing the National Pension Scheme (NPS) limit from ₹50,000 to ₹1 lakh and raising the health insurance deduction under Section 80D from ₹25,000 to ₹50,000. Additionally, SBI Research has proposed reducing the tax rate to 15% for income between ₹10-15 lakh and applying a uniform 15% tax rate on all bank deposits.
Experts’ Expectations from the Government
SBI’s Group Chief Economic Advisor, Dr. Soumya Kanti Ghosh, stated in the report, “We estimate that the Indian government could ensure better tax compliance and boost consumption by including everyone under the new tax system.” However, implementing such measures could potentially result in a slight decrease in the government’s tax revenue.
SBI Research’s Likely Changes
- Under the new tax system, all deductions will be included.
- The NPS limit will be raised from ₹50,000 to ₹1 lakh, and the health insurance deduction will be increased from ₹25,000 to ₹50,000.
- The highest tax rate of 30% will remain for income over ₹15 lakh, but the rate for income between ₹10-15 lakh will be reduced from 20% to 15%.
- A uniform 15% tax will be applied to all bank deposits across all maturity periods. This income should be added to other income and separated from the highest income bracket.
- The tax exemption limit on savings account deposits will be increased to ₹20,000.
SBI Research has estimated that these changes could lead to a revenue loss of ₹50,000 crore, equivalent to 0.14% of the GDP.
As the Budget 2025 approaches, there have been calls for reducing tax rates under the new system and broadening tax exemptions.
Also Read- 5 Income Tax Changes to Expect from Budget 2025
Expectations from the Old Tax System
No official announcement has been made by the government regarding the discontinuation of the old tax regime. However, discussions about its future continue. The new tax system, introduced in the 2020 Union Budget, offers lower tax rates without the deductions and exemptions available under the old system. Despite the growing popularity of the new system due to its simplicity, many taxpayers still prefer the old system, as it offers several deductions and exemptions under Sections 80C and 80D.