Budget 2025: Bring All Taxpayers Under New Tax Regime, Increase Tax Exemptions For Health Insurance, NPS, Says SBI Report

As Finance Minister Nirmala Sitharaman prepares to table the Union Budget 2025 on February 1, 2025, the State Bank of India released a special report on January 24, 2025, recommending moving every taxpayer under the new tax regime and increasing certain exemptions limits. SBI recommended that the government omit the old tax regime completely while retaining only NPS and health insurance exemption under the new regime. However, it recommended increasing the exemption limit under the two provisions.

SBI in its ‘Prelude to Union Budget 2025-26’ report said, “FY26 budget could be built on the edifice of: Social Security, Financial Stability, Health Care and Consumption …We envisage the Pareto optimal solution of Rationalizing Direct taxes across various options with least revenue loss / Rs 50,000 crores / a meagre 0.14 per cent of GDP and maximum gains to the consumer.”

The bank recommended the removal of all exemptions and bringing it all under the new tax regime, but retaining as well as enhancing the NPS limit from Rs 50,000 to Rs 1 lakh.

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Enhancing medical insurance exemption to Rs 50,000 from Rs 25,000.

Additionally, the bank also recommended tax rates rationalisation to 15 per cent from 20 per cent for income tax bracket Rs 10-15 lakh.

The bank also recommended a 15 per cent tax on deposits across all maturities. This recommendation was made with the rationale that if the government does not charge tax on interest gained from banks on the basis of their income bracket but a standard 15 per cent, it will promote bank deposits.

The report also recommended increasing the savings bank tax exemption to Rs 20,000.

As the report recommended a flat 15 per cent on all fixed deposits (FD), the bank projected a growth of 4.01 per cent in bank deposits due to the simplified tax structure. However, this also comes with a revenue loss of around Rs 10,408 crore for the central government.

The report also recommended that the government charges the tax at the time of withdrawal instead of charging tax annually on an accrual basis.

Currently, long-term capital gains and short-term capital gains on stocks and mutual funds are taxed at 12.5 per cent and 20 per cent respectively. The change in tax on FD interest gain can streamline it with the current structure of other taxation.

Meanwhile, the government’s women-centric policy was also looked at critically in the SBI report. SBI called for looking at these policies holistically instead of political angle.

"In a bid to woo women voters in the elections, all the parties have announced states that women-centric schemes, which give direct cash transfers ranging from Rs 1000-2000 per month. The total cost of 8 states amounts to Rs 1.5 lakh crore, which varies from 3-11 per cent of the state's revenue receipts. There is a need to have a holistic view of schemes.”