Income Tax Budget: Union Budget Expectations Tax Relief on Fixed Deposits and PPF Limits for Common Man

Income Tax Budget: With the Union Budget scheduled explicitly for February 1st, anticipation is building across the nation. From salaried employees to senior citizens, everyone is eagerly waiting to see what the Finance Minister will unveil. While the 2025 budget provided some relief to salaried individuals under the New Tax Regime and reduced GST rates benefited the common man, expectations are now high regarding potential changes in Fixed Deposits (FD) and Small Savings Schemes for the upcoming fiscal year.

Although the government’s fiscal headroom might be tight, limiting the possibility of massive tax cuts, reports suggest that targeted relief measures are under consideration. Here is a breakdown of the key areas where changes might be expected.

Tax Relief on Fixed Deposits and Interest Income

Interest income from bank deposits remains a primary source of livelihood for many middle-class families, especially retirees. Currently, taxation on this interest significantly reduces the actual disposable income in an inflationary market.

• Focus on Senior Citizens: Discussions are reportedly underway to reduce the tax burden on interest earned from Fixed Deposits and small savings schemes. However, this relief might primarily target Senior Citizens rather than the general population.
• Current Scenario: Under the Old Tax Regime, general citizens can claim a deduction of up to ₹10,000 on savings account interest (Section 80TTA), while senior citizens enjoy a deduction of up to ₹50,000 on interest from both FDs and savings accounts (Section 80TTB). Whether this limit will be hiked or introduced into the New Tax Regime remains a key point of speculation.

Boosting PPF Limits and Savings

The Public Provident Fund (PPF) is one of the most trusted long-term investment tools in India. However, the annual investment limit for PPF has remained stagnant at ₹1.5 lakh for several years.

Experts believe the government might consider increasing this deposit limit in the upcoming budget. A hike in the PPF cap would serve a dual purpose: it would encourage a higher savings rate among the public and allow individuals to secure a larger corpus for their future while saving tax.

Encouraging Health Insurance Coverage

With rising medical inflation, Health Insurance has become a necessity rather than a luxury. To encourage more citizens to opt for health cover, the government may consider increasing the tax deduction limit on health insurance premiums. This move would not only provide financial relief to taxpayers but also reduce the burden on public healthcare by ensuring more people are insured.

The Dilemma: New vs. Old Tax Regime

A significant ambiguity remains regarding the implementation of these potential benefits. The government has been aggressively pushing the New Tax Regime, which typically disallows most deductions and exemptions (like 80C or 80D).

Since the New Regime is designed to be “exemption-free” with lower rates, it is unclear how tax breaks on FDs or PPF would be integrated into it. While a massive overhaul is unlikely given the fiscal constraints, the Finance Minister’s speech on February 1st will ultimately reveal whether the common man gets the much-awaited relief.