The government is reportedly considering a proposal to increase the tax-deductible limit on interest income from savings accounts to Rs 25,000. With the Budget 2024 date set for July 23, the proposal, put forth by banks during a recent meeting with key finance ministry officials, aims to provide deposit incentives amidst concerns over the widening credit-deposit ratio, claimed an Economic Times report.

If it goes through, it will offer some relief to lenders, who have demanded incentives to shore up deposits. A final decision on this proposal is still pending. BT could not independently verify the report. 

Under the current tax regime, interest income up to Rs 10,000 per year from savings accounts is tax-exempt under Section 80TTA of the Income Tax Act. For senior citizens aged 60 and above, this limit is set at Rs 50,000 and includes interest income from fixed deposits under Section 80TTB. However, these benefits were removed under the new tax regime introduced in the 2020 budget.

The report claimed deliberations on the enhancement of the old limit and letting interest income earned from savings accounts in scheduled commercial banks (SCBs) under existing regulations in the new regime.

The Reserve Bank of India's latest Financial Stability Report observed that households are diversifying their financial savings, allocating more to non-banks and the capital market. 

The Indian taxpayer could be in for a pleasant surprise this Budget with the centre also considering tax relief for individuals. Among the options being evaluated is an increase in the exemption limit under the new regime to Rs 5 lakh from the current Rs 3 lakh per annum. Another option being considered is nil tax liability on income up to Rs 8 lakh per annum, aligning the tax structure with the criteria for the Economically Weaker Section (EWS). 

EWS includes all those under the general category whose gross annual family income is below Rs 8 lakh.