Budget Expectations 2025: New tax regime for all? SBI Research suggests removing old regime exemptions
Union Budget 2025: With Finance Minister Nirmala Sitharaman set to present her eighth consecutive budget on Saturday, anticipation is growing among taxpayers who are keen to understand how the proposals will impact their finances.
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Budget 2025: A shift to the new tax regime for all taxpayers and a flat 15 percent tax on fixed deposit interest are among the recommendations listed by the research wing of the largest bank in India, State Bank of India (SBI), in its recently released research report titled 'Prelude to Union Budget 2025-26'. The research report suggests a series of tax reforms aimed at simplifying the tax structure, boosting disposable income, and encouraging savings.
This comes ahead of Union Budget 2025-26, which is set to be presented by Finance Minister Nirmala Sitharaman on Saturday, February 1. According to the SBI Research report, key suggestions include transitioning all taxpayers to the new tax regime, introducing a flat tax on fixed deposit (FD) interest, and raising exemption limits for savings accounts and medical insurance.
Here are the key suggestions listed by the SBI research for central government for Budget 2025-26:
1. New tax regime for all taxpayers: The SBI Research report recommends moving all taxpayers to the New Tax Regime, which would involve phasing out exemptions under the Old Tax Regime. While this move is estimated to result in a nominal revenue loss of Rs 50,000 crore (0.14 per cent of GDP), it is expected to enhance tax compliance, increase disposable income, and boost consumption.
2. Flat 15 per cent tax on fixed deposit interest: One of the most significant proposals is the introduction of a flat 15 per cent tax on interest earned from fixed deposits (FDs) across all maturities. Currently, FD interest is taxed according to individual income slab rates, ranging from 5 per cent to 30 per cent. The SBI Research report suggests that taxing FD interest at a uniform rate of 15 per cent—applicable at the time of withdrawal rather than annually—would align FD taxation with the treatment of equities and mutual funds. This change is expected to simplify the tax system and encourage savings, though it would result in an estimated revenue loss of Rs 10,408 crore annually.
3. Increase in savings account tax exemption limit: The SBI Research report also proposes increasing the tax exemption limit on savings account interest from Rs 10,000 to Rs 20,000. This move would benefit nearly 99.65 per cent of savings account holders in the country, providing relief to a large section of the population and encouraging more people to save.
4. Rationalisation of tax slabs: For individuals earning between Rs 10–15 lakh annually, the SBI Research report suggests reducing the tax rate from 20 per cent to 15 per cent.
5. Enhancement of NPS and medical insurance exemptions: The SBI Research report also suggests increasing the National Pension System (NPS) exemption limit from Rs 50,000 to Rs 1 lakh. Additionally, it proposes raising the medical insurance exemption limit from Rs 25,000 to Rs 50,000, providing greater financial security to taxpayers.
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