04 Jul Finance Ministry Considers Standard Deduction Increase in New Tax Regime | Budget 2024 Update
According to a CNBC Awaaz report, the Finance Ministry is considering increasing the standard deduction limit in the new tax regime. This adjustment is anticipated to be included in Finance Minister Nirmala Sitharaman’s first budget of her third term, following consultations across various government departments and the Prime Minister’s Office.
Understanding Standard Deduction
The standard deduction is a fixed amount that taxpayers can deduct from their taxable income without needing receipts or expense proofs. It serves to reduce taxable income, thereby lowering overall tax liability.
Current Proposal and Previous Measures
In the previous fiscal 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 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 suggest that given the current economic conditions, this limit may no longer be adequate. There is speculation that the government might raise it to ₹1 lakh or more to better align with present-day expenses and inflation rates.
Historical Changes in Standard Deduction
- 2004-2005: The standard deduction was initially introduced to assist salaried individuals and pensioners but was later removed as part of tax simplification measures.
- 2018: The standard deduction made a comeback in the Union Budget, set 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 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, ensuring uniform tax relief across both old and new tax structures.
Industry and Economic Implications
Increasing the standard deduction limit could reduce taxable income for all salaried taxpayers, including those with higher incomes. This measure is expected to offer relief amid escalating living costs and economic challenges.
Source: CNBC TV18
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