Budget 2025: Will BJP Govt Do Away With Tax Exemptions Under Old Regime? Here's What SBI Research Claims

The Centre is considering removing all exemptions under the Old Tax Regime, transitioning them to the new system. This comes from a report by SBI Research, released before Finance Minister Nirmala Sitharaman's budget speech on February 1, 2025.

The report suggests increasing the National Pension System (NPS) limit from Rs 50,000 to Rs 1 lakh and raising the medical insurance exemption under section 80D to Rs 50,000 from Rs 25,000, a report in Business Today noted.

Finance Minister Sitharaman will present the Union Budget for 2025 on February 1. This comes as GDP growth has slowed significantly over recent quarters. The government is expected to prioritise economic recovery in its plans.

Proposed Changes by SBI Research

SBI Research has proposed several tax-relief measures for consideration in the upcoming budget. These include consolidating all exemptions under the new tax regime while increasing the NPS limit from Rs 50,000 to Rs 1 lakh and raising the medical insurance exemption to Rs 50,000 from Rs 25,000. Additionally, they suggest maintaining a peak tax rate of 30% for income over Rs 15 lakh but reducing it to 15% from 20% for those earning between Rs 10-15 lakh.

The report also recommends implementing a flat 15% tax on bank deposits across all maturity periods. This income should be added to other earnings and separated from the highest income bracket. Furthermore, they propose raising the tax exemption limit for savings account deposits to Rs 20,000.

"We estimate GoI can ensure better tax compliance and bolster consumption through enhancing disposable income by moving all and one under the New Tax regime," Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, stated in the report.

Old Tax Regime Possibilities

No official announcements have been made about abolishing the old tax regime yet. However, discussions continue regarding its future. Introduced in the Union Budget of 2020, the new tax regime offers lower rates without exemptions and deductions available previously.

Despite its simplicity attracting many taxpayers, some still prefer the old system due to deductions like those under Sections 80C and 80D. Vivek Jalan of Tax Connect Advisory Services LLP believes eliminating it completely would streamline income tax slabs sensibly.

"Today, under the New Tax Regime, income tax has become much simpler," Jalan noted. "With an exemption limit of Rs 7 lakhs, taxpayers pay zero tax at levels where they were previously taxed." He suggested that as part of a comprehensive review on February 1st next year when presenting this budget proposal - making this sole option could be beneficial overall.

Potential Impact on Revenue

SBI Research suggests these proposals might lead to revenue losses amounting up to Rs50k crore or approximately .14% GDP reduction if implemented fully according their estimates shared within said document itself earlier today too! As such though there may indeed exist potential downsides here financially speaking; ultimately however any decision taken must carefully weigh pros cons alike before proceeding further down path towards implementation thereof accordingly thereafter perhaps instead?

Balwant Jain expressed his views on this matter: "Looking at biased attitude government towards new regime increasing number people opting fact limits various deductions available haven't enhanced since introduction don't get shocked if finance minister altogether scraps old."

The government has been urged before now lower rates broaden exemptions under newer systems ahead Budget Day itself soon approaching fast upon us once again shortly thereafter following suit accordingly thereafter perhaps instead?