Income tax relief: Budget 2024 may increase standard deduction limit to ₹1 lakh. Finance Ministry is contemplating an increase in the standard deduction limit under the new tax regime, according to CNBC Awaaz report.
The decision is expected to be part of Finance Minister Nirmala Sitharaman’s first budget of her third term, following consultations and internal assessments within various government departments and the Prime Minister’s Office.
Understanding standard deduction
Standard deduction is a fixed amount that taxpayers can deduct from their taxable income without the need for receipts or expense proofs.
It reduces the taxable income, thereby lowering the overall tax liability.
Current proposal and previous budget measures
In the last financial year’s budget, Finance Minister Nirmala Sitharaman proposed a standard deduction of ₹50,000 for salaried individuals and pensioners under the new tax regime.
This deduction applies by default unless taxpayers choose to opt-out.
Additionally, the income threshold eligible for tax relief under Section 87A was raised to ₹7 lakh.
The new regime also eliminated the highest surcharge, simplifying tax calculations.
However, experts argue that this limit may no longer suffice given current economic conditions.
There is speculation that the government might consider raising it to at least ₹1 lakh to better align with present-day expenses and inflation rates.
How standard deduction limit has changed over the years?
| Year | Details |
| 2004-2005 | The standard deduction initially introduced to assist salaried individuals and pensioners in offsetting employment-related expenses, was removed as part of tax simplification measures. |
| 2018 | The standard deduction made a comeback in the Union Budget, setting the limit at ₹40,000 for both salaried employees and pensioners. |
| February 1, 2019 | The Interim Budget raised the standard deduction limit from ₹40,000 to ₹50,000, providing additional relief to salaried individuals and pensioners. However, this increase was limited to those following the old tax regime. |
| Budget 2023 | To enhance the appeal of the new income tax regime, Budget 2023 extended the standard deduction benefit of ₹50,000 to taxpayers opting for the new regime, thereby ensuring uniform tax relief across both old and new tax structures. |
Industry and economic implications
The increase in the standard deduction limit could lead to a reduction in taxable income for all salaried taxpayers, including those with higher incomes.
This move is expected to provide relief amidst rising living costs and economic challenges.