Budget 2024 Expectation: Standard Deduction Limit to increase upto Rs.1 lakh to provide Tax Relief

The Finance Ministry is discussing enhancing the new tax regime standard deduction limit, as per the media report.

Following meetings and internal assessments with several government ministries and the Prime Minister’s Office, the decision is expected to be included in Finance Minister Nirmala Sitharaman’s first budget of her third term.

Understanding Standard Deduction

The standard deduction is a set sum that can be subtracted from taxable income by taxpayers without the requirement to show proof of expenditure or receipts.

Some of the advantages that it has include removing a certain level of taxable income, thereby lowering the tax liability.

Present Proposal and Former Budget Initiatives

During the last financial year’s budget speech, Finance Minister Smt. Nirmala Sitharaman announced concisely that the standard deduction for salaried employees and pensioners will be Rs. 50000 under the new tax regime.

If taxpayers do not choose to opt-out, this deduction is automatically applied.

Also, the income limit to avail of the tax relief under section 87-A has been increased to Rs. 7 lakh.

This new regime also did away with the highest surcharge, which will simplify the calculation of taxes.

Still, some claim that this limit may not be sufficient in future due to the nature of the current economic climate.

Some have hinted that the government may likely increase it to at least Rs.1 Lakh to cover present-day costs and inflation.

The following chart shows how the standard deduction limit has evolved over the years:

For all salaried taxpayers, including those with higher incomes, the increase in the standard deduction limit may result in a decrease in taxable income.