Budget 2024 Income Tax Expectations: Proposal to Raise Tax-Deductible Limit on Interest Income from Savings Accounts to Rs 25,000 Under Review

As the Union Budget 2024 approaches, there are high expectations for potential changes to the income tax structure. One proposal currently under consideration is the increase of the tax-deductible limit on interest income from savings accounts to Rs 25,000. This suggestion was brought forward by banks during a recent meeting with key officials from the finance ministry.

Banks have been pushing for deposit incentives as concerns grow over the widening credit-deposit ratio. A government official mentioned that the proposal is under review and there could be some relief for banks demanding incentives to boost deposits. The final decision on this matter will be made closer to the budget announcement.

Under the old tax regime, interest income up to Rs 10,000 per year from savings accounts is tax-exempt. For senior citizens, this limit is set at Rs 50,000 and includes interest income from fixed deposits. However, these benefits were removed under the new tax regime introduced in the 2020 budget.

The Reserve Bank of India noted in its latest report that households are diversifying their financial savings, allocating more to non-banks and the capital market. The rising credit-deposit ratio, which peaked at 78.8% in December 2023, is a cause for concern.

HDFC Bank, the largest private sector lender in the country, reported a 5% decline in its current account-savings account deposits during the first quarter of the current financial year. This highlights the importance of addressing the concerns raised by banks regarding deposit incentives.

As the budget announcement draws near, all eyes will be on Finance Minister Nirmala Sitharaman to see if the proposal to increase the tax-deductible limit on interest income from savings accounts to Rs 25,000 will be implemented, providing much-needed relief to banks and depositors alike.