Anticipated Budget 2024-25: Possible increase in standard deduction to Rs 1 lakh for salaried taxpayers
With the Union Budget around the corner, expectations are high for potential benefits the Finance Minister may announce for taxpayers. A key anticipated benefit is an increase in the standard deduction limit. Originally reintroduced in Budget 2018 at Rs 40,000, replacing travel allowance (Rs 19,200) and medical deduction (Rs 15,000), the limit was increased to Rs 50,000 in the interim budget of 2019. However, there’s a growing demand to further raise this limit, as the current Rs 50,000 offers only marginal additional savings compared to the replaced deductions’ total of Rs 34,200. Experts suggest the Finance Minister might consider increasing the standard deduction to up to Rs 1 lakh per annum.
The standard deduction is a flat deduction for salaried individuals, available without the need to submit proof or documents to the employer or IT Department. It allows up to Rs 50,000 per year when computing income under “salaries,” applicable to both private and government sector employees regardless of salary amount. Until FY 2022-23, this deduction was available only under the old regime, but from FY 2023-24, it’s also available under the new tax regime.
For pensioners, the standard deduction is applicable if the pension is charged under “Income from Salaries” rather than “Income from Other Sources.” Thus, pensions received after retirement qualify for the deduction, while pensions received by dependents after the pensioner’s death do not.
Given the minimal additional deduction provided by the current limit, experts argue for an increase to make the standard deduction more beneficial, thus boosting taxpayers’ disposable income. Inflation and the prolonged period without an increase as reasons for anticipating a rise in the standard deduction to Rs 1 lakh, which would provide relief to taxpayers. Increasing the standard deduction is seen as necessary to ensure parity between salaried individuals and those with business income, who can claim deductions for business-related expenses.
Taxpayers and experts alike are hopeful for a significant increase in the standard deduction, which would provide substantial financial relief and enhance disposable income.