New Delhi, Jan 23 (PTI) The Government is likely to make sweeping recast of direct taxes in the ensuing Budget to give a boost to the economy following demonetisation, says a report.

According to SBI's research report Ecowrap, the upcoming Budget is likely to see an increase in personal income tax exemption limit, increase in section 80C exemption limit, interest exemption on housing loan and and at least reducing (if not abolishing) the lock in period for bank fixed deposits.

"We expect an increase in personal income tax exemption limit from ₹ 2.5 lakh to ₹ 3.0 lakh, increase in section 80C exemption limit from current ₹ 1.5 lakh to ₹ 2 lakh, interest exemption on housing loan from ₹ 2 lakh to ₹ 3 lakh and at least reducing (if not abolishing) the lock in period for bank fixed deposits from 5 years to 3 years for availing tax exemption," SBI Research said in its Ecowrap report.

The report, authored by Soumya Kanti Ghosh, Chief Economic Adviser & GM, Economic Research Department, SBI noted that "such giveaways will cost ₹ 35,300 crore but we expect this to be more than balanced by IDS2 revenue and cancelled note liabilities of RBI".

SBI Research expects tax collection under IDS to be around ₹ 50,000 crore and cancelled liabilities from RBI to be around ₹ 75,000 crore.

Following the demonetisation move, the recast in direct tax moves is expected to give a boost the economy.

"The demonetisation has changed the entire gamut of the economy. The GDP growth is expected to be grow by 7.1 per cent in 2016-17 compared to 7.6 per cent growth in 2015-16," it said.

The report further noted that the challenges for the budget this year are more formidable than they were in the previous year.

"There is no substitute to investment led growth as opposed to consumption led. A more prudent approach will be to select two-three high potential sectors for fiscal stimulus, agriculture being the most promising followed by SME," it said.

Personal income tax exemption increase proposed to stimulate post demonetisation growth, with offsets from special receipts. A proposed recast of direct tax measures seeks to stimulate the post demonetisation economy by raising the personal income tax exemption threshold, increasing the Section 80C deduction limit, expanding the housing loan interest deduction, and reducing the lock in period for tax exempt bank fixed deposits. These concessions are expected to be offset by receipts from an income declaration scheme and cancelled central bank currency liabilities, while fiscal policy signals a preference for investment led growth and targeted stimulus to sectors like agriculture and SMEs.