Will Budget 2025 phase out the old tax regime? SBI Research proposes to bring all in the new regime

The report, however, suggests to retain and enhance the National Pension System (NPS) limit from ₹50,000 to ₹1 lakh and medical insurance exemption under section 80D to ₹50,000 from ₹25,000.

"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, SBI, said in the report.

Such a move may, however, lead to a nominal loss of tax revenue to the government.

The Pareto optimal solution refers to a set of solutions that achieve the highest level of performance for several objectives at the same time.

Changes proposed by SBI Research

The report has proposed the following tax-relief measures for the government to adopt in the upcoming budget:

• Remove all exemptions and bring all under the new tax regime, but retain and enhance the NPS limit from ₹50,000 to ₹1 lakh and enhance medical insurance exemption to ₹50,000 from ₹25,000

• Retain peak rate at 30% for income above ₹15 lakh but reduce rate to 15% from 20% in ₹10-15 lakh income bracket.

• Introduce a flat 15% tax on bank deposits across all maturities. Further, such income should be added to other income and delinked from the highest income bucket.

• Increase the tax exemption limit for savings account deposits to ₹20,000.

"We propose this option for the Government and Consumers with the revenue loss at Rs 50,000 crores / 0.14% of GDP," SBI research said.

In the run-up to Budget 2025, It is not the first time that the government has received a suggestion to cut tax rates and bring more tax exemptions under the new regime.